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US Internal Revenue Service: td8921

US Internal Revenue Service: td8921

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Published by: IRS on Nov 30, 2007
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03/18/2014

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1[4830-01-u]DEPARTMENT OF THE TREASURYInternal Revenue Service26 CFR Part 1[TD 8921]RIN 1545-AY23Tax Treatment of Cafeteria PlansAGENCY: Internal Revenue Service (IRS), Treasury.ACTION: Final regulations.SUMMARY: This document contains final regulations relating to section 125 cafeteriaplans. The final regulations clarify the circumstances under which a cafeteria plan maypermit an employee to change his or her cafeteria plan election with respect to accidentor health coverage, group-term life insurance coverage, dependent care assistanceand adoption assistance during the plan year.DATES: Effective Date: These regulations are effective January 10, 2001.Applicability Date: See the Scope of Regulations and Effective Date portion ofthis preamble.FOR FURTHER INFORMATION CONTACT: Christine L. Keller or Janet A. Laufer at(202) 622-6080 (not a toll-free number).
 
Section 125(f) provides that the following are not qualified benefits (even though they
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are generally excludable from gross income under an express provision of the InternalRevenue Code): products advertised, marketed, or offered as long-term careinsurance; medical savings accounts under section 106(b); qualified scholarshipsunder section 117; educational assistance programs under section 127; and fringebenefits under section 132.2SUPPLEMENTARY INFORMATION:
Background
 This document contains amendments to the Income Tax Regulations (26 CFRpart 1) under section 125 of the Internal Revenue Code (Code). Section 125 generallyprovides that an employee in a cafeteria plan will not have an amount included in grossincome solely because the employee may choose among two or more benefitsconsisting of cash and qualified benefits. A qualified benefit generally is any benefitthat is excludable from gross income under an express provision of the Code, includingcoverage under an employer-provided accident or health plan under sections 105 and106, group-term life insurance under section 79, elective contributions under a qualifiedcash or deferred arrangement within the meaning of section 401(k), dependent careassistance under section 129, and adoption assistance under section 137. Qualified
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benefits can be provided under a cafeteria plan either through insured arrangements orarrangements that are not insured.
 
49 FR 19321 (May 7, 1984) and 54 FR 9460 (March 7, 1989), respectively.
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TD 8878at 65 FR 15548
 
(March 23, 2000)
.
These final regulations were preceded by
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temporary regulations issued in 1997. See 62 FR 60196 (November 7, 1997) and 62FR 60165 (November 7, 1997).REG-117162-99 at 65 FR 15587 (March 23, 2000)
.
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3In 1984 and 1989, proposed regulations were published relating to cafeteriaplans. In general, the 1984 and 1989 proposed regulations require that, for benefits to
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be provided on a pre-tax basis under section 125, an employee may make changesduring a plan year only in certain circumstances. Specifically, Q&A-8 of
1.125-1 andQ&A-6(b), (c), and (d) of
1.125-2 permit participants to make benefit election changesduring a plan year pursuant to changes in cost or coverage, changes in family status,and separation from service.In 2000, final regulations were issued permitting a participant in a cafeteria plan
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to change his or her accident or health coverage election during a period of coveragein specific circumstances such as where special enrollment rights arise under section9801(f) (added to the Code by the Health Insurance Portability and Accountability Actof 1996 (HIPAA)(110 Stat. 1936), where eligibility for Medicare or Medicaid is gained orlost, or where a court issues a judgment, decree, or order requiring that an employee
schild or foster child who is a dependent receive health coverage. In addition, the finalregulations permit an employee to change his or her accident or health coverageelection or group-term life insurance election if certain change in status rules aresatisfied.On the same day that the final regulations were issued, proposed regulations
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