IRS: CO-OPs Can't Lobby

The new Consumer Operated and Oriented Plan (CO-OP) health insurers should keep their political views to themselves.

IRS officials discusses that CO-OP guideline in IRS Notice 2011-23.

In the notice, officials talk about IRS efforts to flesh out Internal Revenue Code Section 501(c)(29), the section of the tax code that will govern the CO-OP carriers.

Congress added Section 501(c)(29) to the tax code in Section 1322(h) of the PPACA Compass Patient Protection and Affordable Care Act (PPACA), a major component of the Affordable Care Act.

Republicans in Congress are trying to repeal the Affordable Care Act or block implementation.

If PPACA Section 1322 takes effect as written, CO-OPs will provide a nonprofit, member-owned alternative to for-profit insurers and government-run health programs.

To qualify for a CO-OP tax exemption, a CO-OP must be a "qualified nonprofit health insurance issuer" that is organized as a nonprofit, member corporation under state law and focuses "substantially all" of its activities on issuing qualified individual and small group health coverage.

A company cannot become a qualified issuer if it

or a predecessor was a health insurer as of July 16, 2009, or if it is sponsored by a state or local government agency.

Under PPACA Section 1322, officials say, "No substantial part of the organization's activities [may] consist of carrying on propaganda, or otherwise attempting, to influence legislation," and the organization cannot "participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office."

The IRS will be issuing a revenue procedure on how and when CO-OPs can apply for 501(c)(29) status, and it asking for comments about what it should put in the procedure, officials say.

The effective date of the exemption for a CO-OP that has received a federal CO-OP loan or grant will be March 23, 2010, or, if CO-OP formed after March 23, 2010, the CO-OP formation date, officials say.

The IRS is asking for comments on a number of CO-OP restrictions provisions, such as a prohibition on private inurement, the limitation on lobbying activities and the limitation on political activities.

Comments are due May 27, 2011.