n-11-04.pdf

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# Part III - Administrative, Procedural, and Miscellaneous

Certain Changes in Method of Accounting for Organizations to which Section 833
Applies

Notice 2011-4

## SECTION 1. PURPOSE

This notice provides procedures for a taxpayer to obtain automatic consent to
change its method of accounting for unearned premiums by reason of § 833(c)(5) of the
Internal Revenue Code (Code). Rev. Proc. 2008-52, 2008-2 C.B. 587, as amplified,
clarified, and modified by Rev. Proc. 2009-39, 2002-2 C.B. 371, is modified; Notice
2010-79, 2010-49 I.R.B. 809, is clarified and modified.

SECTION 2. BACKGROUND

Section 833 of the Code provides special rules for existing Blue Cross and Blue
Shield organizations within the meaning of § 833(c)(2), and certain other organizations
that are described in § 833(c)(3).

Section 9016 of the Patient Protection and Affordable Care Act (H.R. 3590, P.L.
111-148) (the "Affordable Care Act") added § 833(c)(5) to the Code, effective for taxable
years beginning after December 31, 2009. Section 833(c)(5) provides that § 833 does

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not apply to an otherwise-eligible organization unless the organization's medical loss
ratio (MLR) during the taxable year is not less than 85 percent.

The application of § 833 in a taxable year followed by nonapplication of that
provision in the subsequent taxable year (or vice versa) may result in one or more
changes in accounting method. For example, accounting for 100 percent of unearned
premiums under § 833(a)(3) in one year, but only 80 percent of unearned premiums
under § 832(b)(4) in the next year is a change in method of accounting. Likewise, the
loss (or recovery) of insurance company status may implicate a number of changes in
methods of accounting because some methods of accounting are available only to
insurance companies under Subchapter L. The special deduction allowed under §§
833(a)(2) and 833(b) is not, however, a method of accounting.

### SECTION 3. SCOPE

This notice applies to an existing Blue Cross or Blue Shield organization within
the meaning of § 833(c)(2), or an organization described in § 833(c)(3), that is required
to change its method of accounting for unearned premiums by reason of failing to meet
the MLR requirements of § 833(c)(5), or by reason of meeting the MLR requirements of
§ 833(c)(5) after failing to meet those requirements in a prior year.

## SECTION 4. CHANGES IN METHOD OF ACCOUNTING

A taxpayer that is required to change methods of accounting for unearned
premiums under a situation described in Section 3 of this notice, must use the automatic
change in method procedures of Rev. Proc. 2008-52, or its successor, as modified by
this notice.

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# SECTION 5. EFFECT ON OTHER DOCUMENTS

.01 Rev. Proc. 2008-52 is modified to add new section XX to the APPENDIX, to
read as follows:

SECTION XX. Certain Changes in Method of Accounting for Organizations to
which Section 833 Applies

(1) Description of change. This change applies to an existing Blue Cross or Blue
Shield organization within the meaning of § 833(c)(2), or an organization
described in § 833(c)(3), that is required to change its method of accounting for
unearned premiums by reason of failing to meet the MLR requirements of
§ 833(c)(5), or by reason of meeting the MLR requirements of § 833(c)(5) after
failing to meet those requirements in a prior year.

(2) Scope limitations inapplicable. The scope limitations of section 4.02 of this
revenue procedure do not apply to this change.

(3) Accelerated § 481(a) adjustment period in certain situations. In addition to
the circumstances set forth in section 5.04(3) of this revenue procedure, the
§ 481 adjustment period provided in section 5.04(1) will be accelerated in the
event a taxpayer with a remaining balance of a § 481(a) adjustment that arose by
reason of a change in method of accounting described in this section is required
to effect another change in method of accounting described in this section. Thus,
for example, a taxpayer that fails to satisfy the requirements of § 833(c)(5) and
as a result has a positive § 481(a) adjustment is required to accelerate the
remaining balance, if any, of that adjustment in a subsequent taxable year in

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which the taxpayer meets the requirements of § 833(c)(5).

(4) Designated automatic accounting method change number. The designated
automatic accounting method change number for a change under section XX of
this APPENDIX is "XXX." See section 6.02(4) of this revenue procedure.

(5) Contact information. For further information regarding this section, please
contact Rebecca L. Baxter at (202) 622-7117 (not a toll-free call).

.02 Section 3.09 of Notice 2010-79 is clarified and modified to provide that
changes in method of accounting for unearned premiums that are required as a result of
the operation of § 833(c)(5) must be implemented under the automatic method change
procedures of Rev. Proc. 2008-52, or its successor.

SECTION 6. EFFECTIVE DATE

This notice is effective December 27, 2010.

# DRAFTING INFORMATION

The principal author of this notice is Rebecca L. Baxter of the Office of Associate
Chief Counsel (Financial Institutions & Products (CC:FIP:B04)). For further information
regarding this notice contact Ms. Baxter on (202) 622-7117 (not a toll-free call).