Notice 2012-41

lower limit specified in the plan). Cafeteria plan amendments may be effective
only prospectively. See Prop. Treas.
Reg. § 1.125–1(c). Notwithstanding this
rule against retroactive amendments, an
amendment to conform a cafeteria plan to
the requirements of § 125(i) that is adopted
on or before December 31, 2014, may be
made effective retroactively, provided that
the cafeteria plan operates in accordance
with the requirements of § 125(i) (including the guidance under this notice) for plan
years beginning after December 31, 2012.
This amendment to the written cafeteria
plan may be expressed as a maximum
dollar amount or by another method of determining the maximum dollar amount of
salary reduction contributions to a health
FSA, but in no case may the plan permit a
participant to make salary reduction contributions, for a plan year beginning after
December 31, 2012, exceeding the $2,500
limit.
V. EXAMPLES
The rules of this notice are illustrated
by the following examples. For all examples, it is assumed that the cafeteria plan
otherwise satisfies all of the requirements
of § 125 and the proposed regulations, and
that the employer is not a member of a controlled group or affiliated service group.
Example 1. (i) Employer W offers a calendar
year cafeteria plan including a health FSA. Employer
W amends its written cafeteria plan by December 31,
2014, to provide that, effective for the plan year
beginning on January 1, 2013, employee salary
reduction contributions to a health FSA are limited
to $2,500 (as indexed for inflation).
(ii) Employer W’s written cafeteria plan satisfies
the requirements of § 125(i).
Example 2. (i) Employer X offers a calendar year
cafeteria plan including a health FSA with a grace period of two months and 15 days that complies with
Notice 2005–42 and the proposed regulations. Effective for the 2012 plan year, the written plan provides
that employee salary reduction contributions for the
health FSA are limited to $5,000. Effective for the
2013 plan year, the written plan provides that employee salary reduction contributions to the health
FSA are limited to $2,500 (as indexed for inflation).
Some employees have unused amounts from their
2012 health FSA salary reduction contributions that
remain available during the grace period in the first
two months and 15 days of 2013.
(ii) The availability during the grace period of
amounts attributable to 2012 health FSA salary reduction contributions does not cause Employer X’s
cafeteria plan to fail to satisfy the $2,500 limit.

2012–26 I.R.B.

VI. EFFECTIVE DATES
Under the guidance provided in this notice, section 125(i) applies to plan years beginning after December 31, 2012. Indexing of the $2,500 limit applies to plan years
beginning after December 31, 2013.
VII. EFFECT ON OTHER
DOCUMENTS
The Treasury Department and the IRS
intend to amend the regulations under
§§ 1.125–1, 1.125–2, and 1.125–5 to provide for the $2,500 limit, and taxpayers
may rely on the foregoing guidance in this
notice pending issuance of the amended
regulations.
VIII. REQUEST FOR COMMENTS
ON POSSIBLE MODIFICATION OF
USE-OR-LOSE RULE FOR HEALTH
FSAS
In light of the $2,500 limit, the Treasury Department and the IRS are considering whether, for health FSAs, the position
contained in proposed regulations that is
often referred to as the “use-or-lose” rule”
should be modified. That rule generally
prohibits any contribution or benefit under
an FSA from being used in a subsequent
plan year or period of coverage. See Prop.
Treas. Reg. § 1.125–1, Q&A–7(b) (1984);
Prop. Treas. Reg. § 1.125–2, Q&A–5
& Q&A–7 (1989); Prop. Treas. Reg.
§ 1.125–5(c) (2007). Thus, under this rule,
unused amounts in the health FSA are “forfeited” at the end of the plan year.
The $2,500 limit, while not addressing the “use-or-lose” rule, limits the potential for using health FSAs to defer compensation and the extent to which salary
reduction amounts may accumulate over
time. Given the $2,500 limit, the Treasury Department and the IRS are considering whether the use-or-lose rule for health
FSAs should be modified to provide a different form of administrative relief (instead of, or in addition to, the current 2 1/2
month grace period rule). Comments are
requested on whether the proposed regulations should be modified to provide additional flexibility with respect to the operation of the use-or-lose rule for health FSAs
and, if so, how any such flexibility might
be formulated and constrained. Comments
are also requested on how any such mod-

1048

ifications would interact with the $2,500
limit.
This section VIII of this notice does not
constitute guidance and may not be relied
upon by taxpayers.
Comments must be submitted by August 17, 2012. Comments should include a reference to Notice 2012–40.
Send submissions to CC:PA:LPD:PR
(Notice 2012–40), Room 5203, Internal Revenue Service, P.O. Box 7604,
Ben Franklin Station, Washington, DC
20044. Submissions may be hand delivered Monday through Friday between the hours of 8 a.m. and 4 p.m.
to CC:PA:LPD:PR (Notice 2012–40),
Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW,
Washington, DC 20044, or sent electronically, via the following e-mail address:
[email protected].
Please include “Notice 2012–40” in
the subject line of any electronic
communication. All material submitted
will be available for public inspection and
copying.
DRAFTING INFORMATION
The principal author of this notice is
Elizabeth Purcell of the Office of Division
Counsel/Associate Chief Counsel (Tax
Exempt and Government Entities). For
further information regarding this notice,
contact Ms. Purcell at (202) 622–6080
(not a toll-free call).

Extension of Relief and
Procedures Under Notice
2010–30 and Notice
2011–16 for Spouses of
U.S. Servicemembers Who
are Working In or Claiming
Residence or Domicile In
a U.S. Territory Under the
Military Spouses Residency
Relief Act
Notice 2012–41
On April 15, 2010, the Department of
the Treasury (Treasury Department) and
the Internal Revenue Service (IRS) published Notice 2010–30, 2010–18 I.R.B.
650, which provides relief and procedures

June 25, 2012

for certain taxpayers who are spouses
(civilian spouses) of active duty members
of the uniformed services (servicemembers). The relief and procedures were
made available to civilian spouses who (A)
accompany their servicemember spouses
to a military duty station in American
Samoa, Guam, the Northern Mariana Islands (NMI), Puerto Rico, or the U.S.
Virgin Islands (USVI) (each a “U.S. territory”) and claim residence or domicile (tax
residence) in one of the 50 States or the
District of Columbia under the Military
Spouses Residency Relief Act (MSRRA)
or (B) accompany their servicemember
spouses to a military duty station in one
of the 50 States or the District of Columbia and claim tax residence in a U.S.
territory under MSRRA. The relief and
procedures set forth in Notice 2010–30
were initially available for the taxable year
including November 11, 2009 (generally,
this would be calendar year 2009, referred to hereinafter as 2009). On April 8,
2011, the Treasury Department and the
IRS published Notice 2011–16, 2011–17
I.R.B. 720, which extended the relief and
procedures announced in Notice 2010–30
to the first taxable year beginning after
November 11, 2009 (generally, this would
be calendar year 2010).
This notice further extends the relief
set forth in Notice 2010–30 for civilian
spouses described in the prior paragraph
to taxable years beginning after November 11, 2010 (generally, these will be calendar year 2011 and subsequent calendar
years, referred to hereinafter as 2011 and
subsequent taxable years), and provides
that such civilian spouses should follow
the applicable procedures described in Notice 2010–30.
The extension of time to pay federal income taxes described in Part III(A)(1)(b)
of Notice 2010–30 for 2009 is available
to eligible civilian spouses described in
Part III(A)(1)(b) of Notice 2010–30 claiming MSRRA relief with respect to individual federal income tax returns filed for
2011 and subsequent taxable years. To obtain an extension of time through October 17, 2012, to pay federal income taxes
for 2011, such taxpayers should follow the
procedures in Part III(A)(1)(b) of Notice
2010–30. To obtain an extension to pay
federal income taxes for subsequent taxable years, such taxpayers should follow
those same procedures adjusted for the ap-

June 25, 2012

propriate filing dates in each such subsequent taxable year.
As provided in Notice 2010–30, the
IRS has also determined pursuant to section 6654(e)(3)(A) of the Internal Revenue Code that, with respect to civilian
spouses eligible for the extension of time
to pay federal income taxes described in
this notice and Part III(A)(1)(b) of Notice
2010–30, the addition to tax under section
6654(a) will not apply in the case of an underpayment of estimated tax by such civilian spouses for 2011 and subsequent taxable years due to unusual circumstances.
Civilian spouses who obtain the extension to pay federal income taxes for 2011
and subsequent taxable years provided by
this notice are required to pay interest on
the amount of tax from the original payment due date until the date the tax is paid.
Pursuant to section 6601, interest is calculated from the prescribed payment due
date determined under section 6151 without regard to any extension to pay federal
income tax, including the extension to pay
tax provided by this notice.
For the reasons discussed in Part
III(A)(2) of Notice 2010–30, the extension to pay federal income taxes described
in Part III(A)(1)(b) of Notice 2010–30 is
not available to civilian spouses claiming
tax residence in a State or the District
of Columbia under MSRRA and filing
individual federal income tax returns for
2011 and subsequent taxable years who
are (A) federal employees in American
Samoa, Guam, or the USVI, or (B) individuals working in Guam or the NMI to
whom section 935 applies. These civilian
spouses should file their individual federal
income tax returns for 2011 and subsequent taxable years, and pay any taxes
due, according to the procedures described
in Part III(A)(2) of Notice 2010–30.
Civilian spouses who accompany their
servicemember spouses to a military duty
station in one of the 50 States or the District of Columbia and who claim tax residence in a U.S. territory under MSRRA
should follow the procedures in Part III(B)
of Notice 2010–30 with respect to their
individual federal income tax returns for
2011 and subsequent taxable years.
DRAFTING INFORMATION
The principal author of this notice
is Jackie B. Manasterli of the Office of

1049

Associate Chief Counsel (International).
For further information regarding this
notice, contact Jackie B. Manasterli at
(202) 435–5262 (not a toll-free call).

Credit for Carbon Dioxide
Sequestration 2012 Section
45Q Inflation Adjustment
Factor
Notice 2012–42
SECTION 1. PURPOSE
This notice publishes the inflation adjustment factor for the credit for carbon
dioxide (CO2) sequestration under § 45Q
of the Internal Revenue Code (§ 45Q
credit) for calendar year 2012. The inflation adjustment factor is used to determine
the amount of the credit allowable under
§ 45Q. The calendar year 2012 inflation-adjusted credit applies to the amount
of qualified CO2 captured by a taxpayer
at a qualified facility and disposed of in
secure geological storage.
SECTION 2. BACKGROUND
Section 45Q(a)(1) allows a credit of $20
per metric ton of qualified CO2 that is captured by the taxpayer at a qualified facility, disposed of by the taxpayer in secure
geological storage, and not used by the
taxpayer as a tertiary injectant. Section
45Q(a)(2) allows a credit of $10 per metric
ton of qualified CO2 that is captured by the
taxpayer at a qualified facility, used by the
taxpayer as a tertiary injectant in a qualified enhanced oil or natural gas recovery
project, and disposed of by the taxpayer in
secure geological storage.
Section 45Q(b)(1) defines the term
“qualified carbon dioxide” as CO2 captured from an industrial source that would
otherwise be released into the atmosphere
as industrial emission of greenhouse gas,
and that is measured at the source of capture and verified at the point of disposal
or injection. Qualified CO2 includes the
initial deposit of captured CO2 used as a
tertiary injectant but does not include CO2
that is re-captured, recycled, or otherwise
re-injected as part of the enhanced oil and
natural gas recovery process.
Section 45Q(c) defines the term “qualified facility” as an industrial facility that

2012–26 I.R.B.