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How to Be a 501(c)(29) Entity

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The Internal Revenue Service (IRS) has made good on a pledge to give people who want to set up a new type of nonprofit, member-owned health insurer — a 501(c)(29) entity — some instructions about how to do so.

The IRS describes the procedures organizers of qualified nonprofit health insurance issuers (QNHIIs) in IRS Revenue Procedure 2012-11. The IRS developed the revenue procedure to help with implementation of the Consumer Operated and Oriented Plan (CO-OP) program described in Section 1322 of the Patient Protection and Affordable Care Act of 2010 (PPACA).

Members of Congress added the CO-OP section to PPACA in an effort to increase the level of competition in the health insurance market.

The QNHIIs that participate in the CO-OP program must make “substantially all” of their sales to individuals and small groups.

The QNHIIs in the CO-OP program are hoping to split $3.8 billion in federal PPACA CO-OP startup loans.

Revenue Procedure 2012-11 explains how the IRS will go about issuing determination letters and ruling on whether QNHIIs can become 501(c)(29) organizations.

A would-be QNHII should send a letter application and a Form 8718 determination letter request form to an IRS office in Cincinnati, officials say.

The application should a copy of the QNHII’s by-laws, a balance sheet and other financial reports, and a narrative statement describing the QNHII’s past and proposed activities, officials say.

Organizers must promise that they are buying CO-OP program rules, such as rules that forbid QNHII’s from lobbying or participating in political campaigns.

The revenue procedure is effective Feb. 7, 2012.