# Bulletin No. 2020–48

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## Record

- **Collection:** Agency decision
- **Document type:** Agency decision

## Text

HIGHLIGHTS
OF THIS ISSUE




Bulletin No. 2020–48
November 23, 2020

These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.

ADMINISTRATIVE
Rev. Proc. 2020-49, page 1122.

This revenue procedure provides temporary guidance regarding the public approval requirement under § 147(f) of
the Internal Revenue Code for tax-exempt qualified private
activity bonds. Specifically, in light of the continuing Coronavirus Disease 2019 pandemic, this revenue procedure extends until September 30, 2021, the time period described
in section 4.02 of Rev. Proc. 2020-21, 2020-22 I.R.B. 872,
during which certain telephonic hearings are permitted.

EMPLOYEE PLANS
REG.-122462-20, page 1137.

The IRS is issuing temporary regulations regarding coverage
of preventive health services to implement section 3203
of the Coronavirus Aid, Relief, and Economic Security Act
(CARES Act), which shortens the timeframe under which
non-grandfathered group health plans and health insurance
issuers offering non-grandfathered group or individual health
insurance coverage must cover without cost sharing qualifying coronavirus preventive services, including recommended
COVID-19 immunizations. The IRS is issuing the temporary
regulations at the same time that the Employee Benefits Security Administration of the Department of Labor and the Office of Consumer Information and Insurance Oversight of the
Department of Health and Human Services (HHS) are issuing
substantially similar interim final rules with request for comments. The text of those temporary regulations also serves
as the text of these proposed regulations.

EMPLOYEE TAX
Rev. Proc. 2020-47, page 1121.

This revenue procedure modifies the general procedures
used by the IRS to implement the Gaming Industry Tip Com-

Finding Lists begin on page ii.

pliance Agreement (GITCA) program. The GITCA program
allows gaming industry employers to enter into voluntary
agreements with the IRS to establish minimum tip rates for
tipped employees in specified occupational categories. The
GITCA program was established by Rev. Proc. 2003-35, and
updated by Rev. Proc. 2007-32 with a new model GITCA.
This revenue procedure modifies Rev. Proc. 2007-32 by
extending the expiration and renewal term of a GITCA from
three to five years.

INCOME TAX
Rev. Rul. 2020-25, page 1109.

2020 Base Period T-Bill Rate. The “base period T-bill rate”
for the period ending September 30, 2020, is published as
required by section 995(f) of the Internal Revenue Code.

Rev. Proc. 2020-50, page 1122.

This revenue procedure provides guidance for taxpayers
wishing to apply §§ 1.168(k)-2 and 1.1502-68 of the Income
Tax Regulations, or to rely on the proposed regulations under
§ 168(k) (REG-106808-19) published in 2019 for: (1) certain
depreciable property acquired and placed in service by the
taxpayer after September 27, 2017; (2) certain plants planted or grafted by the taxpayer, as applicable, after September
27, 2017; and (3) components acquired or self-constructed
by the taxpayer after September 27, 2017, of certain larger
self-constructed property. If the taxpayer retroactively applies §§ 1.168(k)-2 and 1.1502-68, or relies on the 2019
proposed regulations, this revenue procedure also allows the
taxpayer to make a late election under § 168(k)(5), (k)(7),
or (k)(10), § 1.168(k)-2(c) of the 2020 final regulations or
the 2019 proposed regulations, or § 1.1502-68(c)(4), or to
revoke an election under § 168(k)(5), (k)(7), or (k)(10), or §
1.168(k)-2(c) of the 2019 proposed regulations.

T.D. 9919, page 1073.

Nonresident aliens and foreign corporations are taxable in
the United States on taxable income that is effectively connected with the conduct of a trade or business in the United
States. These final regulations provide rules for determining
the amount of effectively connected gain or loss recognized
by a nonresident alien individual or foreign corporation from
the sale or exchange of an interest in a partnership that is
engaged in a trade or business within the United States. TD
9919. Published November 6, 2020.

TEMPORARY REGULATION
T.D. 9931, page 1087.

The IRS is issuing temporary regulations regarding coverage
of preventive health services to implement section 3203 of the

Coronavirus Aid, Relief, and Economic Security Act (CARES
Act), which shortens the timeframe under which non-grandfathered group health plans and health insurance issuers offering non-grandfathered group or individual health insurance coverage must cover without cost sharing qualifying coronavirus
preventive services, including recommended COVID-19 immunizations. The IRS is issuing the temporary regulations at the
same time that the Employee Benefits Security Administration
of the Department of Labor and the Office of Consumer Information and Insurance Oversight of the Department of Health
and Human Services (HHS) are issuing substantially similar interim final rules with request for comments.

The IRS Mission
Provide America’s taxpayers top-quality service by helping
them understand and meet their tax responsibilities and enforce the law with integrity and fairness to all.

Introduction
The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing official rulings and procedures of the Internal Revenue Service
and for publishing Treasury Decisions, Executive Orders, Tax
Conventions, legislation, court decisions, and other items of
general interest. It is published weekly.
It is the policy of the Service to publish in the Bulletin all substantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless otherwise indicated. Procedures relating solely to matters of internal management are not published; however, statements of
internal practices and procedures that affect the rights and
duties of taxpayers are published.
Revenue rulings represent the conclusions of the Service
on the application of the law to the pivotal facts stated in
the revenue ruling. In those based on positions taken in rulings to taxpayers or technical advice to Service field offices,
identifying details and information of a confidential nature are
deleted to prevent unwarranted invasions of privacy and to
comply with statutory requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned

against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions
of the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B,
Legislation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative
Rulings. Bank Secrecy Act Administrative Rulings are issued
by the Department of the Treasury’s Office of the Assistant
Secretary (Enforcement).
Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbarment and suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

November 23, 2020 

Bulletin No. 2020–48

Part I
26 CFR 1.864(c)(8)-1 Gain or Loss of Foreign Persons from Sale or Exchange of Certain Partnership
Interests

T.D. 9919
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1
Gain or Loss of Foreign
Persons from Sale or
Exchange of Certain
Partnership Interests
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations and temporary regulations.
SUMMARY: This document contains regulations that provide guidance for certain
foreign persons that recognize gain or loss
from the sale or exchange of an interest
in a partnership that is engaged in a trade
or business within the United States. The
regulations also affect partnerships that,
directly or indirectly, have foreign persons
as partners.
DATES: Effective date: These regulations
are effective on November 6, 2020.
Applicability dates: For dates of applicability, see §§1.864(c)(8)-1(j) and 1.8977(c).
FOR FURTHER INFORMATION CONTACT: Chadwick Rowland or Ronald M.
Gootzeit, (202) 317-6937 (not a toll-free
call).
SUPPLEMENTARY INFORMATION:
Background
On December 27, 2018, the Department of the Treasury (the “Treasury
Department”) and the IRS published
proposed regulations (REG-113604-18)

Bulletin No. 2020–48

under section 864(c)(8) in the Federal
Register (83 FR 66647) (the “proposed
regulations”). Section 864(c)(8) was
added to the Internal Revenue Code (the
“Code”) by the Tax Cuts and Jobs Act,
Public Law 115-97 (2017) (the “Act”),
which was enacted on December 22,
2017. The proposed regulations provide
rules for determining the amount of gain
or loss treated as effectively connected
with the conduct of a trade or business
within the United States (“effectively
connected gain” or “effectively connected loss”) under section 864(c)(8), including certain rules that coordinate section
864(c)(8) with other relevant sections of
the Code.
The Treasury Department and the IRS
received written comments with respect
to the proposed regulations. All written
comments received in response to the proposed regulations are available at www.
regulations.gov or upon request. No public hearing on the proposed regulations
was requested or held.
The Treasury Department and the IRS
have also published proposed regulations
(REG-105476-18) in the Federal Register relating to the withholding of tax
and information reporting with respect to
certain dispositions by a foreign person
of an interest in a partnership that is engaged in the conduct of a trade or business within the United States (the “proposed withholding regulations”). See 84
FR 21198 (May 13, 2019). The Treasury
Department and the IRS plan to publish
final withholding and information reporting regulations in a later issue of the Federal Register.
Summary of Comments and
Explanation of Revisions
I. Overview
The final regulations retain the basic
approach and structure of the proposed
regulations with certain revisions. This
Summary of Comments and Explanation
of Revisions section discusses the comments received in response to the solicitation of comments in the proposed regulations and explains the revisions made in
response to those comments.

1073

II. Comments and Revisions to Proposed
§1.864(c)(8)-1
A. Determining deemed sale EC gain or
deemed sale EC loss
Section 864(c)(8)(A) provides that
gain or loss of a nonresident alien individual or foreign corporation (a “foreign
transferor”) from the sale, exchange, or
other disposition (“transfer”) of an interest in a partnership that is engaged in
any trade or business within the United
States is treated as effectively connected
gain or loss to the extent such gain or loss
does not exceed the amount determined
under section 864(c)(8)(B). In general,
section 864(c)(8)(B) limits the amount of
effectively connected gain or loss to the
portion of the foreign transferor’s distributive share of gain or loss that would have
been effectively connected if the partnership had sold all of its assets at fair market value (the deemed sale limitation).
The proposed regulations illustrate how
to determine the deemed sale limitation
described in section 864(c)(8)(B), which
the proposed regulations refer to as the
aggregate deemed sale EC (“ADSEC”)
amount. Once the ADSEC amount has
been determined for each applicable category of gain or loss, the foreign transferor’s outside gain or loss in each category
is compared to the relevant ADSEC gain
or ADSEC loss amount for that category
to determine the amount of effectively
connected gain or effectively connected
loss under section 864(c)(8). In general,
this amount is determined through a threestep process. Step one determines the
amount of gain or loss from each partnership asset as if the partnership conducted
a deemed sale of all of its assets on the
date of transfer (these amounts, deemed
sale gain or deemed sale loss). Step two
determines the amount of the deemed sale
gain or loss that would be treated as effectively connected gain or loss with respect
to each asset (these amounts are referred
to as deemed sale EC gain or deemed sale
EC loss). Finally, step three determines
the foreign transferor’s distributive share
of the deemed sale EC gain or deemed
sale EC loss amounts determined in step
two.

November 23, 2020

As noted in the preceding paragraph,
step two requires the gain or loss from the
deemed sale of each partnership asset to be
analyzed to determine if the gain or loss is
properly characterized as effectively connected gain or effectively connected loss.
Sourcing determinations are often material in determining whether gain or loss
is effectively connected with the conduct
of a trade or business within the United
States. See, for example, sections 864(c)
(2) and (3). Because the sourcing rules
in the Code and regulations are generally
fact-specific, the application of these rules
in the context of the deemed sale required
by section 864(c)(8)(B) is unclear. For
example, it is unclear how to apply the
sourcing rules and principles contained in
sections 865(e)(2)(A) and (e)(3) (and the
regulations implementing those sections)
(the U.S. office rule) to the deemed sale of
partnership property required by section
864(c)(8)(B). Specifically, the application
of the U.S. office rule depends upon factual determinations made regarding the
underlying sale; that is, whether it is attributable to an office or other fixed place
of business in the United States, and, with
respect to inventory property, whether it
is sold for use, disposition, or consumption outside the United States and whether
an office or other fixed place of business
maintained by the taxpayer in the foreign
country materially participated in the sale.
In a deemed sale, however, the required
facts are generally not determinable because a sale has not actually occurred.
Therefore, to address this lack of required
facts and provide guidance on how to
apply the sourcing provisions to deemed
sales, the proposed regulations provide
rules that serve as a proxy for the factual
determinations that apply for purposes of
sourcing deemed sale gain and loss and,
in turn, for determining deemed sale EC
gain and loss.
In general, proposed §1.864(c)(8)1(c)(2)(i) treats all deemed sale gain and
loss as attributable to an office or other
fixed place of business maintained by
the partnership in the United States, and
does not treat inventory property as sold
for use, disposition, or consumption outside the United States in a sale in which
an office or other fixed place of business maintained by the partnership in a
foreign country materially participates.

November 23, 2020

Thus, the rule in proposed §1.864(c)(8)1(c)(2)(i) provides simplifying factual
assumptions that generally treat deemed
sale gain and loss as U.S. source. An exception to this rule is provided in the proposed regulations if, during the ten-year
period ending on the date of transfer, the
asset in question produced no income or
gain that was taxable as income that was
effectively connected with the conduct
of a trade or business within the United
States by the partnership (or a predecessor), and the asset has not been used, or
held for use, in the conduct of a trade or
business within the United States by the
partnership (or a predecessor) (the “tenyear exception”). Proposed §1.864(c)(8)1(c)(2)(ii).
A comment on the interaction between section 864(c)(8) and the sourcing rules suggested that the simplifying
factual assumptions supplied by the rule
in proposed §1.864(c)(8)-1(c)(2)(i) may
overstate the amount of effectively connected gain or loss on a deemed sale of
the partnership’s assets, as compared to
an actual asset sale, by treating all gain or
loss from the deemed sale as attributable
to a U.S. office of the partnership, subject
only to the ten-year exception. As a result,
the proposed regulations would similarly
overstate the amount of the deemed sale
limitation. To address this concern, the
comment suggested that in determining
deemed sale EC gain and loss, the final
regulations should aim to provide a result
that is no better or worse than the result
that would occur upon an actual asset
sale by the partnership, but the comment
acknowledged the difficulty in achieving this objective because the underlying
source rules largely rely on fact-specific
determinations.
The Treasury Department and the IRS
generally agree with the broad principles
described in the comment regarding proposed §1.864(c)(8)-1(c)(2). While these
final regulations retain the basic framework of the proposed regulations, including the factual determinations regarding
office attribution provided in proposed
§1.864(c)(8)-1(c)(2)(i), these final regulations adjust their effects by adding rules
for sourcing gain or loss from specific
assets that may be particularly difficult to
source in a deemed sale. §1.864(c)(8)-1(c)
(2)(ii)(B) through (E).

1074

1. Ten-year exception
The final regulations provide that
deemed sale EC gain and loss is determined by applying section 864 and the regulations thereunder. §1.864(c)(8)-1(c)(2)(i)
(A). These final regulations retain the tenyear exception as an exception to the determination of deemed sale EC gain and loss
under §1.864(c)(8)-1(c)(2)(i)(A). The tenyear exception is intended to remove assets
that have no nexus to the United States
from the deemed sale EC gain and loss
determination; therefore, for these assets,
a foreign transferor does not need to apply
the rules described in §1.864(c)(8)-1(c)(2)
(ii) to determine deemed sale EC gain and
loss. One comment requested that the final
regulations clarify that the ten-year exception applies to assets that were not held by
the partnership for the full ten-year period.
As requested by the comment, these final
regulations modify the relevant testing period for the ten-year exception to account
for a partnership (including a predecessor
of the partnership) that has not existed for
at least ten years, or that has not held an
asset for at least ten years, by shortening
the relevant testing period to the lesser of
the ten-year period ending on the date of
the transfer or the period during which the
partnership (and a predecessor of the partnership) held the asset. §1.864(c)(8)-1(c)
(2)(i)(B). In addition, to ensure that the tenyear exception is properly applied, these
final regulations also modify the relevant
testing period to include any period during
which the foreign transferor (and a predecessor of the foreign transferor) held the asset. Id. Accordingly, an asset will not qualify for the ten-year exception if it generated
effectively connected income or effectively
connected gain for the foreign transferor
(or a predecessor of the foreign transferor),
or if the asset was used in the conduct of a
trade or business within the United States
by the foreign transferor (or a predecessor
of the foreign transferor), within the relevant testing period. Id.
2. Rules for Sourcing Deemed Sale Gain
and Loss for Purposes of Determining
Deemed Sale EC Gain and Loss
Proposed §1.864(c)(8)-1(c)(2)(i) treats
all gain or loss from the deemed sale of
an asset as attributable to an office or oth-

Bulletin No. 2020–48

er fixed place of business maintained by
the partnership in the United States, and
does not treat inventory property as sold
for use, disposition, or consumption outside the United States in a sale in which
an office or other fixed place of business
maintained by the partnership in a foreign
country materially participated. These
final regulations make several changes
to the general rule provided in proposed
§1.864(c)(8)-1(c)(2)(i) in response to the
comment described in section II.A of this
Summary of Comments and Explanation
of Revisions; these final regulations also
clarify the scope of this rule. First, these
final regulations clarify that the general
rule applies only for purposes of applying
section 865(e)(2)(A) to personal property
held by the partnership on the date of the
deemed sale. §1.864(c)(8)-1(c)(2)(ii)(A).
Second, these final regulations provide
additional sourcing rules for determining
the foreign source portion of deemed sale
gain and loss attributable to specific assets
included in the deemed sale. §1.864(c)
(8)-1(c)(2)(ii)(B) through (E). The specific assets are inventory, intangibles, and
depreciable personal property. Additional
sourcing rules are needed because gain
or loss from actual sales of each of these
assets would be subject to specific sourcing rules under the Code, but sourcing
deemed sale gain or loss under those rules
would generally require facts that are not
determinable in a deemed sale. These final
regulations also clarify that if the partnership does not maintain an office or other
fixed place of business in the United States
(within the meaning of section 864(c)(5)
(A) and §1.864-7), neither the U.S. office
attribution described in §1.864(c)(8)-1(c)
(2)(ii)(A), nor the additional sourcing
rules described in §1.864(c)(8)-1(c)(2)
(ii)(B) through (E), will apply. §1.864(c)
(8)-1(c)(2)(ii)(A). Finally, the final regulations reorganize the proposed regulations to account for the changes described
in this section II.A.2 of this Summary of
Comments and Explanation of Revisions,
and the phrase in proposed §1.864(c)(8)1(c)(2)(i) regarding use, disposition, or
consumption outside the United States is
removed to conform with changes made
to the general rule and the addition of a
specific inventory sourcing rule.
The asset-specific rules provided in
§1.864(c)(8)-1(c)(2)(ii)(B) through (E)

Bulletin No. 2020–48

utilize available facts as a proxy for the
sourcing results, and the attendant effectively connected determinations, that
would occur in an actual sale by the
partnership of inventory, intangibles, or
depreciable personal property. These asset-specific rules use existing sourcing
rules and principles to provide fair, administrable rules that can be applied consistently. Specifically, the foreign source
portion of deemed sale gain or loss attributable to inventory property (as defined
in section 865(i)(1)) is determined using
a proxy method that is based on historical data (as suggested by the comment);
the foreign source portion of deemed
sale gain and loss attributable to intangibles (as defined in section 865(d)(2))
is determined using a proxy method that
is based on the partnership’s historic income; and the foreign source portion for
certain deemed sale gain or loss attributable to depreciable personal property (as
defined in section 865(c)(4)(A)) is determined under a recapture principle and, to
the extent applicable, a proxy method that
is also based on historical data. Additionally, these final regulations add a material
change in circumstances rule in §1.864(c)
(8)-1(c)(2)(ii)(E) that applies if, based on
a material change in circumstances, the
asset-specific rules for inventory property
or intangibles do not reach an appropriate
sourcing result.
Thus, to the extent that deemed sale
gain or loss is attributable to inventory,
intangibles, or depreciable personal property, the sourcing result for these assets is
determined by first applying §1.864(c)(8)1(c)(2)(ii)(A) and then, to the extent applicable, the asset-specific rules provided in
§1.864(c)(8)-1(c)(2)(ii)(B) through (D),
or the material change in circumstances
rule provided in §1.864(c)(8)-1(c)(2)(ii)
(E). Accordingly, the U.S. office attribution rule described in §1.864(c)(8)-1(c)(2)
(ii)(A) applies to these assets only to the
extent that the deemed sale gain or loss
exceeds the relevant foreign source portion determined under the relevant rule
provided in §1.864(c)(8)-1(c)(2)(ii)(B)
through (E).
i. Look-back rule for inventory property
The comment on the interaction between section 864(c)(8) and the sourcing

1075

rules recommended that the Treasury Department and IRS consider a separate rule
for sourcing deemed sales of inventory
based on historical data showing how inventory sales were sourced by the partnership over a specified period. The Treasury
Department and the IRS agree with the
suggestion.
Section 1.864(c)(8)-1(c)(2)(ii)(B)
provides a look-back rule for determining the foreign source portion of deemed
sale gain or loss attributable to inventory
property (as defined in section 865(i)(1),
but not including gain sourced by reference to section 865(c)(2)) that is held by
the partnership on the date of the deemed
sale. Specifically, the general rule provided in §1.864(c)(8)-1(c)(2)(ii)(A) will not
apply, and the deemed sale of inventory
property will not be treated as attributable to an office or other fixed place of
business maintained by the partnership in
the United States, to the extent of foreign
source inventory gain or loss. This amount
is determined by multiplying deemed sale
gain and loss attributable to inventory
by a fraction that determines the foreign
source inventory ratio. The numerator of
the fraction includes the gross income of
the partnership that is attributable to foreign source gain or loss from inventory
property (as determined under the rules
of sections 865(b) and 865(e)) sold within
the shorter of the period comprised of the
partnership’s three taxable years immediately preceding the date of the deemed
sale, or the existence of the partnership
(measured by partnership taxable years);
the denominator of the fraction is the total gross income of the partnership that is
attributable to inventory over that period.
This approach addresses the concerns
raised in the comment by looking to the
partnership’s past operations to determine
the relevant sourcing result for inventory property, instead of assuming that all
of the gain or loss from the deemed sale
of inventory property is attributable to a
U.S. office (unless the ten-year exception is met). That is, because sourcing the
deemed sale gain or loss attributable to
inventory property will require facts that
are not available in a deemed sale, this
approach sources the deemed sale gain
or loss by reference to the actual sourcing results from prior sales of inventory
property during the look-back period, as

November 23, 2020

evidenced by the foreign source inventory
ratio. This rule can be applied by taxpayers and administered by the government
with certainty.
ii. Look-back rule for intangibles
The comment on the interaction between section 864(c)(8) and the sourcing
rules also discussed how the simplifying factual assumptions supplied by the
rule in proposed §1.864(c)(8)-1(c)(2)(i)
may overstate the amount of effectively connected gain or loss with respect to
a deemed sale of intangibles held by the
partnership. While acknowledging the
difficulty of determining the source of
deemed sale gain and loss attributable to
intangibles, the comment described an
approach that would apply a separate rule
to determine the source of deemed sale
gain and loss attributable to intangibles
in lieu of the simplifying factual assumptions supplied by the rule in proposed
§1.864(c)(8)-1(c)(2)(i) as it applies to intangibles. The Treasury Department and
the IRS agree that it is difficult to source
deemed sale gain or loss attributable to
intangibles and that a single, administrable rule to address this issue is preferable.
To minimize the difficulty of applying the
sourcing rules to intangible property and
to provide more certainty, the final regulations provide a separate rule for intangibles (including going concern value) that
determines the foreign source portion of
deemed sale gain or loss attributable to
intangibles by using a proxy method that
is based on the source of the partnership’s
historic gross ordinary income.
Section 1.864(c)(8)-1(c)(2)(ii)(C) provides a look-back rule for determining the
foreign source portion of deemed sale gain
or loss attributable to an intangible (as
defined in section 865(d)(2)) held by the
partnership on the date of the deemed sale.
This rule is similar to the look-back rule
for inventory property because it provides
that the deemed sale of an intangible will
not be treated as attributable to an office or
other fixed place of business maintained
by the partnership in the United States
to the extent of a foreign source amount.
This amount is determined by multiplying
deemed sale gain or loss attributable to an
intangible by the foreign source intangible
ratio.

November 23, 2020

Thus, the approach for determining
the foreign source amount with respect
to intangibles employs the same general
approach provided for inventory property,
with certain modifications. Deemed sale
gain or loss attributable to intangibles,
like that attributable to inventory property, cannot be reliably sourced in a deemed
sale because an actual sale has not occurred. However, unlike inventory property, intangibles may not have relevant
historical data indicating how deemed sale
gain and loss would be sourced in an actual sale (for example, some intangibles do
not generate an identifiable income stream
on which a sourcing proxy could be
based). To address this issue, the numerator of the foreign source intangible ratio
includes the foreign source gross ordinary
income of the partnership (other than from
dispositions of depreciable or amortizable
property) during the shorter of the period comprised of the partnership’s three
taxable years preceding the date of the
deemed sale or the existence of the partnership (measured by partnership taxable
years), to the extent that such income was
not effectively connected with the conduct
of a trade or business within the United
States; the denominator includes the total
gross ordinary income of the partnership
(other than from dispositions of depreciable or amortizable property) during that
period. §1.864(c)(8)-1(c)(2)(ii)(C)(1) and
(2). This foreign source intangible ratio
looks specifically to the historic gross ordinary income of the partnership (as opposed to all the historic gross income of
the partnership) in order to more accurately reflect the partnership’s income derived
from the use of the intangibles in the ordinary course of its trade or business. This
rule does not apply to the extent of any
depreciation adjustments (as defined in
section 865(c)(4)(B)) with respect to an
amortizable intangible; instead, the rules
regarding depreciable personal property
will apply to such adjustments.
iii. Special rules for foreign source
inventory ratio and foreign source
intangible ratio
The foreign source inventory ratio
and foreign source intangible ratio may
in certain circumstances cause mathematically impossible results or unclear

1076

application if cost of goods sold exceed
gross receipts. Additional rules were
added to address these concerns. First,
the foreign source inventory ratio and the
foreign source intangible ratio cannot exceed one. §1.864(c)(8)-1(c)(2)(ii)(B) and
(C). Second, if the foreign source gross
income attributable to inventory or the
foreign gross ordinary income is not positive, then respectively the foreign source
inventory ratio or the foreign source intangible ratio is zero. Id. Third, if the foreign source gross income attributable to
inventory is positive, but the total gross
income attributable to inventory is not
positive, or if the foreign gross ordinary
income is positive, but the total gross
ordinary income is not positive, then respectively the foreign source inventory
ratio or the foreign source intangible ratio is one. Id.
iv. Depreciable personal property
Section 1.864(c)(8)-1(c)(2)(ii)(D) provides a two-part approach for determining
the foreign source portion of deemed sale
gain and loss attributable to depreciable
personal property: the first part applies a
recapture principle to the extent of depreciation adjustments taken with respect to
the property, and the second part focuses
on where the property is located to the extent the property has deemed sale gain in
excess of its depreciation adjustments or if
the property has deemed sale loss.
Section 1.864(c)(8)-1(c)(2)(ii)(D)(1)
applies a recapture principle by providing that the deemed sale of depreciable
personal property (as defined in section
865(c)(4)(A)), or the deemed sale of an
amortizable intangible (as defined in section 865(d)(2)), will not be treated as attributable to an office or other fixed place
of business maintained by the partnership in the United States to the extent the
deemed sale gain is treated as sourced outside the United States after applying section 865(c)(1) at the time of the deemed
sale. In contrast to the other sourcing rules
that could apply to assets held by the partnership on the date of the deemed sale, the
recapture rule provided in section 865(c)
(1) can be applied with certainty at the
time of the deemed sale because it is based
on data that is available at the time of the
deemed sale.

Bulletin No. 2020–48

For deemed sale gain in excess of the
depreciation adjustments with respect
to depreciable personal property (other
than an amortizable intangible), or for
deemed sale loss from depreciable personal property (other than an amortizable
intangible), §1.864(c)(8)-1(c)(2)(ii)(D)
(2) provides that the relevant sourcing
determination is made based on where
the property is located. See §1.864(c)(8)1(c)(2)(ii)(C) and section II.A.2.ii of this
Summary of Comments and Explanation
of Revisions for the rule that applies to
gain in excess of depreciation adjustments
with respect to an amortizable intangible.
Although section 865(c)(2) sources the
excess gain as if it were attributable to
inventory property, such treatment would
require further clarification for purposes
of these final regulations. Specifically, in
contrast to inventory property, depreciable
personal property may not have historical
data readily available that evidences the
location of the economic activity associated with the property or that otherwise indicates how the excess gain or loss would
be sourced in an actual sale. To address
this issue, while also providing a clear and
administrable rule, §1.864(c)(8)-1(c)(2)
(ii)(D)(2) sources the excess gain or loss
attributable to depreciable personal property based on the location of the property.
v. Material change in circumstances rule
Section 1.864(c)(8)-1(c)(2)(ii)(E) provides a material change in circumstances
rule for inventory and intangibles. If this
rule applies, the foreign source portion of
deemed sale gain or loss attributable to
inventory property or intangibles may be
determined by applying the relevant rule
of §1.864(c)(8)-1(c)(2)(ii)(B) or (C) by
reference to a modified look-back period.
The Treasury Department and the IRS
have determined that the general rule provided in §1.864(c)(8)-1(c)(2)(ii)(A) and
the asset-specific determinations provided in §1.864(c)(8)-1(c)(2)(ii)(B) and (C)
will reach an appropriate sourcing result
in most cases; that is, an actual sale of the
partnership’s assets has not occurred, so
relevant sourcing information with respect
to an actual sale of the assets on the date of

the deemed sale will not be readily determinable in most cases, and the look-back
rules use the partnership’s past operations
as a proxy for reaching a sourcing determination with respect to certain assets
included in the deemed sale. See sections
II.A.2.i and II.A.2.ii of this Summary of
Comments and Explanation of Revisions.
The Treasury Department and the IRS
realize, however, that the look-back rules
provided in §1.864(c)(8)-1(c)(2)(ii)(B)
and (C) for inventory property and intangibles could reach incorrect sourcing results in certain cases; specifically, if a material change in circumstances occurred
during the relevant look-back period described in paragraph §1.864(c)(8)-1(c)(2)
(ii)(B)(1) or §1.864(c)(8)-1(c)(2)(ii)(C)
(1), the partnership’s historical data for
the entire look-back period may not be
an accurate proxy for reaching a sourcing
determination with respect to deemed sale
gain or loss attributable to such property.
In these cases, the final regulations allow
taxpayers to use this material change in
circumstances rule to remedy an incorrect
sourcing result with respect to inventory
property and intangibles.
The application of §1.864(c)(8)-1(c)(2)
(ii)(E), therefore, is limited to situations in
which a material change in circumstances causes the look-back rule provided in
§1.864(c)(8)-1(c)(2)(ii)(B), or the lookback rule provided in §1.864(c)(8)-1(c)(2)
(ii)(C), to reach an inappropriate sourcing
result; that is, a sourcing result that is materially different from the sourcing result
that would occur if the applicable lookback period began on the date on which the
material change in circumstance occurred
and ended on the last day of the partnership’s taxable year immediately preceding
the year in which the deemed sale occurs
(the modified look-back period).1 If the
material change in circumstances rule
applies, the applicable sourcing rule for
inventory or intangibles may be applied
by reference to the modified look-back
period. §1.864(c)(8)-1(c)(2)(ii)(E). The
determination of whether a sourcing result is materially different is determined
by comparing the foreign source inventory ratio or foreign source intangible ratio
provided in §1.864(c)(8)-1(c)(2)(ii)(B) or

(C) (as applicable) with the foreign source
inventory ratio or foreign source intangible ratio if that ratio were determined by
reference to the modified look-back period. The sourcing result is not materially
different unless the percentage point difference between the two ratios described
in the preceding sentence is at least 30
percentage points. Id. See Example 2 in
§1.864(c)(8)-1(c)(2)(iii).
B. Treaty coordination
A comment questioned whether the
rules provided in proposed §1.864(c)(8)1(c) for determining a foreign transferor’s
deemed sale EC gain or deemed sale EC
loss were intended to apply in the treaty context without regard to whether the
partnership in fact had a permanent establishment in the United States under the
terms of an income tax treaty at the time
of the transfer.
These final regulations clarify that the
U.S. office attribution rule described in
§1.864(c)(8)-1(c)(2)(ii)(A) does not apply
unless the partnership maintains an office
or other fixed place of business in the United States. A partnership without a U.S. office or other fixed place of business will
also generally not have a permanent establishment in the United States. In addition,
the treaty coordination rule in §1.864(c)
(8)-1(f) takes into account an applicable
treaty when computing the amount of a
foreign transferor’s distributive share of
deemed sale EC gain and deemed sale EC
loss. As a result, for purposes of §1.864(c)
(8)-1(c)(3) (that is, the third step in the
three-step process to determine the foreign transferor’s aggregate deemed sale
EC items), gain or loss derived by the
foreign transferor attributable to assets
deemed sold that would be exempt from
tax under an applicable U.S. income tax
treaty if disposed of by the partnership are
not taken into account.
The final regulations retain the general
rule that prevents taxation of gain on assets that do not form part of a permanent
establishment, but also address certain
gains that may be taxed without regard
to whether there is a permanent establishment (for example, gains from the dispo-

The material change in circumstances rule cannot apply to a change in circumstances that occurs in the year of the deemed sale because such a change does not occur during the relevant
look-back period and, in that case, there is no modified look-back period against which to measure the results that otherwise occur under §1.864(c)(8)-1(c)(2)(ii)(B) or (C).
1

Bulletin No. 2020–48

1077

November 23, 2020

sition of certain U.S. real property interests). The final regulations also modify the
structure of proposed §1.864(c)(8)-1(f) by
consolidating proposed §1.864(c)(8)-1(f)
(1) through (3) into a single paragraph and
make three additional changes.
First, §1.864(c)(8)-1(f) clarifies that a
foreign transferor is eligible for benefits
under an income tax treaty only if the
transferor meets the requirements of a
limitation on benefits article, if any, in the
treaty between the jurisdiction in which
the foreign transferor is resident and the
United States.
Second, §1.864(c)(8)-1(f) modifies
proposed §1.864(c)(8)-1(f)(2), which
stated that “[t]reaty provisions applicable
to gains from the alienation of property
forming part of a permanent establishment, including gains from the alienation
of a permanent establishment in the United States, apply to the transfer by a foreign transferor of an interest in a partnership with a permanent establishment in
the United States.” The final regulations
clarify that a gains article that permits
the taxation of gain from the alienation of
property forming part of a permanent establishment or fixed place of business in
the United States also permits the taxation
of gain from the alienation of a partnership
interest, to the extent the partnership’s assets deemed sold under section 864(c)(8)
form a part of the U.S. permanent establishment or fixed place of business of the
partnership. Thus, the final regulations remove from the description of an applicable gains provision the phrase “including
gains from the alienation of a permanent
establishment,” as that phrase, as used in
certain treaties, merely illustrates one application of the underlying words and is
not a separate rule. This approach also is
consistent with the statutory framework
under section 864(c)(8), which determines
the amount of effectively connected gain
or loss of a foreign transferor based on
the amount of the transferor’s distributive
share of gain or loss that would have been
effectively connected if the partnership
had sold all of its assets at fair market value.
Finally, §1.864(c)(8)-1(f) adds a rule
coordinating these regulations with treaty provisions governing the disposition
of United States real property interests,
which allow the United States to tax gain

November 23, 2020

derived from the disposition of the United
States real property interest without regard
to whether the U.S. real property interest
forms a part of a partnership’s permanent
establishment or fixed place of business in
the United States. Under this coordination
rule, if, after applying treaty benefits in
paragraph (c)(3) of this section, the only
gains or losses that would be taken into
account are gains or losses attributable to
United States real property interests, the
foreign transferor determines its effectively connected gain and effectively connected loss pursuant to section 897 and not
under section 864(c)(8). This addition is
consistent with the approach taken in the
proposed regulations that the gain would
be computed under section 897 rather than
section 864(c)(8). See section IV of the
Explanation of Provisions section of the
preamble to the proposed regulations.
C. Partner-specific exclusions and
exceptions
A comment requested that the final
regulations more clearly address the interaction of section 864(c)(8) and §1.864(c)
(8)-1 with provisions of the Code providing for an exemption from U.S. federal
income tax. The Treasury Department
and the IRS agree with this suggestion;
accordingly, the final regulations provide
that a foreign transferor’s distributive
share of deemed sale EC gain or loss does
not include any amount that is excluded
from the foreign transferor’s gross income
or otherwise exempt from U.S. Federal income tax by reason of an applicable provision of the Code. Section 1.864(c)(8)-1(c)
(3)(i). For this purpose, the final regulations refer to sections 864(b)(2), 872(b),
and 883 as examples. Id.
Similarly, §1.864(c)(8)-1(c)(3) is modified to provide that a foreign transferor’s
distributive share of deemed sale EC gain
or deemed sale EC loss does not include
any amount to which an exception under
section 897 applies, such as section 897(k)
or section 897(l), provided that amount is
not otherwise treated as effectively connected income under a provision of the
Code. This rule, which was provided in
proposed §1.864(c)(8)-1(c)(2) as part of
the determination of a foreign transferor’s
deemed sale EC gain and deemed sale EC
loss, is moved to §1.864(c)(8)-1(c)(3) in

1078

these final regulations because the exceptions under section 897(k) and section
897(l) are specific to the foreign transferor. This modification is intended to make
the three step-process for determining the
foreign transferor’s aggregate deemed sale
EC amounts more cohesive by placing all
partner-specific adjustments in step 3.
D. Section 731 distributions
Under the proposed regulations, a foreign transferor determines the amount of
outside gain and loss recognized on the
transfer of a partnership interest under all
relevant provisions of the Code and regulations, including any applicable nonrecognition provision. Proposed §1.864(c)
(8)-1(b)(2). Although section 864(c)(8)(E)
authorizes regulations or other guidance
with respect to the application of section
864(c)(8) to nonrecognition transactions,
the proposed regulations generally do not
provide special rules that apply to nonrecognition transactions. But see proposed
§1.864(c)(8)-1(h) (the anti-stuffing rule).
However, the Treasury Department and
the IRS recognized that certain nonrecognition transactions, for example certain
section 731 distributions, may have the effect of reducing gain or loss that would be
taken into account under the rules provided
in the proposed regulations. The preamble
to the proposed regulations, therefore, requested comments regarding whether sections of the Code other than section 864(c)
(8) adequately address transactions that
rely on section 731 distributions to reduce
the scope of assets subject to U.S. federal income taxation as a result of section
864(c)(8) and proposed §1.864(c)(8)-1. A
comment identified several relevant Code
sections and analyzed the application of
these sections to transactions involving
section 731 distributions. The Treasury
Department and the IRS continue to study
this issue and will, if necessary, address it
through future rulemaking.
E. Information exchange between a
partnership and non-controlling partners
A comment requested that foreign partners that do not own a controlling interest
in a partnership be permitted to estimate
their effectively connected gain or loss
for purposes of section 864(c)(8) because

Bulletin No. 2020–48

non-controlling partners may not be able
to obtain from the partnership the information required to perform the computations under these rules. The Treasury
Department and the IRS have determined
that such a rule is not needed under section 864(c)(8) because the proposed withholding regulations address this issue.
Specifically, the proposed withholding
regulations provide rules in proposed
§1.864(c)(8)-2 that facilitate and encourage the transfer of information between
a foreign partner and a partnership for
purposes of section 864(c)(8). The information reporting requirements of the proposed withholding regulations require the
partnership to provide the foreign partner
with the information necessary to perform
the computations under these rules, even
if the foreign partner does not hold a controlling interest in the partnership. However, this comment will be considered as
part of the proposed withholding regulations, which will be finalized separately in
a later issue of the Federal Register.
F. Section 754 elections
A comment requested a special rule
for any foreign transferor that has a difference between its basis in the partnership interest and its share of the partnership’s inside basis that occurs because
no section 754 election is in effect at the
time of transfer; this special rule would,
in effect, deem a section 754 election.
Specifically, the comment indicated that
a foreign transferor may not have negotiated for the partnership to make a section
754 election upon acquisition of an interest in a partnership engaged in a trade
or business within the United States because the transferor considered Rev. Rul.
91-32, 1991-1 C.B. 107, to be incorrect.
As a result, upon a later transfer of the
acquired partnership interest, the foreign
transferor would have received a different result under the rules in the section
864(c)(8) proposed regulations than if
the partnership had instead sold all of its
assets and then liquidated. Because this
result occurs due to the failure to make a
section 754 election and the mismatches
that follow from that failure, the Treasury
Department and the IRS have determined
that it would be inappropriate to adopt a
special rule in these circumstances.

Bulletin No. 2020–48

G. Clarification of section 897
coordination rule with respect to
nonrecognition provisions
Proposed §1.864(c)(8)-1(d) coordinates the taxation of United States real
property interests under section 897(g)
with section 864(c)(8) by providing that
when a partnership holds United States
real property interests and a transfer of
an interest in that partnership is subject to
section 864(c)(8) because the partnership
is engaged in the conduct of a trade or
business within the United States without
regard to section 897, the amount of the
foreign transferor’s effectively connected gain or loss will be determined under
section 864(c)(8) and not under section
897(g). However, the proposed regulations did not provide explicit guidance on
the application of the section 897 coordination rule when a foreign transferor transfers its partnership interest in a nonrecognition transaction. The final regulations
clarify the interaction between the section
897 coordination rule and the nonrecognition provision described in §1.864(c)(8)1(b)(2)(ii). Specifically, §1.864(c)(8)-1(d)
provides that any transfer of an interest in
a partnership as part of a nonrecognition
transaction will not be subject to section
864(c)(8) to the extent that the gain or loss
on the transfer is not recognized; instead,
if the partnership owns one or more United States real property interests, section
897(g) and the regulations thereunder will
apply with respect to the unrecognized
gain or loss.
III. Applicability Dates
The proposed regulations were proposed to apply to transfers occurring on
or after November 27, 2017. Because the
provisions contained in this rulemaking
are finalized after June 22, 2019, these
regulations generally apply to transfers
occurring on or after December 26, 2018
(that is, the date on which the proposed
regulations were filed with the Federal
Register). See sections 7805(b)(1)(B) and
(b)(2) and §§1.864(c)(8)-1(j) and 1.8977(c); see also the Applicability Dates
section of the Preamble to the proposed
regulations. While not subject to these
final regulations, transfers occurring on
or after November 27, 2017, but before

1079

December 26, 2018, are subject to section
864(c)(8). In addition, these final regulations apply to amounts taken into account
on or after December 26, 2018, pursuant
to an installment sale (as defined in section 453(b)) occurring on or after November 27, 2017, and before December 26,
2018. §§1.864(c)(8)-1(j) and 1.897-7(c).
This rule is consistent with the manner in
which installment sales are treated under
existing law. See, e.g., Snell v. Commissioner, 97 F.2d 891 (5th Cir. 1938) (the tax
laws in effect for the year the installment
gain is recognized apply to the gain); see
also Estate of Kearns v. Commissioner, 73
T.C. 1223 (1980); Klein v. Commissioner, 42 T.C. 1000 (1964); Rev. Rul. 79-22,
1979-1 C.B. 275.
Special Analyses
These final regulations are not subject
to review under section 6(b) of Executive
Order 12866 pursuant to the Memorandum of Agreement (April 11, 2018) between the Treasury Department and the
Office of Management and Budget regarding review of tax regulations.
The Treasury Department and the IRS
have assessed that the final regulations do
not establish a new collection of information nor modify an existing collection
that requires the approval of the Office of
Management and Budget under the Paperwork Reduction Act (44 U.S.C. chapter
35).
Section 864(c)(8) and the final regulations generally apply to nonresident alien
individuals and foreign corporations on
the transfer of an interest in a partnership
that is engaged in a trade or business within the United States, and not directly to the
trade or business the partnership conducts
in the United States. Under section 605 of
the Regulatory Flexibility Act (5 U.S.C.
chapter 6), the Treasury Department and
the IRS certify that the final regulations
will not have a significant economic impact on a substantial number of small
business entities. The reason is that the
final regulations generally apply to nonresident alien individuals and foreign corporations on the transfer of an interest in
a partnership and not directly to domestic
small business entities. Pursuant to section
7805(f), the notice of proposed rulemaking preceding these final regulations was

November 23, 2020

submitted to the Chief Counsel for Advocacy of the Small Business Administration
for comment on its impact on small business. No comments were received.
Drafting Information
The principal authors of these regulations are Chadwick Rowland and Ronald
M. Gootzeit, Office of the Associate Chief
Counsel (International). However, other
personnel from the Treasury Department
and the IRS participated in their development.
Statement of Availability
Revenue rulings and other guidance
cited in this document are published in the
Internal Revenue Bulletin (or Cumulative
Bulletin) and are available from the Superintendent of Documents, U.S. Government Publishing Office, Washington, DC
20402, or by visiting the IRS website at
https://www.irs.gov.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Amendments to the Regulations
Accordingly, 26 CFR part 1 is amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding entries in numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.864(c)(8)-1 also issued under
26 U.S.C. 864(c)(8) and 897(g).
*****
Section 1.897-7 also issued under 26
U.S.C. 897(g).
*****
Par. 2. Section 1.864(c)(8)-1 is added
to read as follows:
§1.864(c)(8)-1 Gain or loss by foreign
persons on the disposition of certain
partnership interests.
(a) Overview. This section provides
rules and definitions under section 864(c)
(8). Paragraph (b) of this section provides
the general rule treating gain or loss rec-

November 23, 2020

ognized by a nonresident alien individual
or foreign corporation from the sale or exchange of a partnership interest as effectively connected gain or effectively connected loss. Paragraph (c) of this section
provides rules for determining the limitations on the amount of effectively connected gain or effectively connected loss
under section 864(c)(8) and paragraph
(b) of this section. Paragraph (d) of this
section provides rules regarding coordination with section 897. Paragraph (e) of
this section provides rules regarding certain tiered partnerships. Paragraph (f) of
this section provides rules regarding U.S.
income tax treaties. Paragraph (g) of this
section provides definitions. Paragraph
(h) of this section provides a rule regarding certain contributions of property to a
partnership. Paragraph (i) of this section
contains examples illustrating the rules set
forth in this section. Paragraph (j) of this
section provides the applicability date.
(b) Gain or loss treated as effectively
connected gain or loss—(1) In general.
Notwithstanding any other provision of
subtitle A of the Internal Revenue Code,
if a foreign transferor owns, directly or indirectly, an interest in a partnership that is
engaged in the conduct of a trade or business within the United States, outside capital gain, outside capital loss, outside ordinary gain, or outside ordinary loss (each
as defined in paragraph (b)(2) of this section) recognized by the foreign transferor
on the transfer of all (or any portion) of the
interest is treated as effectively connected
gain or effectively connected loss, subject
to the limitations described in paragraph
(b)(3) of this section. Except as provided
in paragraph (d) of this section, this section does not apply to prevent any portion
of the gain or loss that is otherwise treated
as effectively connected gain or effectively connected loss under provisions of the
Internal Revenue Code other than section
864(c)(8) from being so treated.
(2) Determination of outside gain and
loss—(i) In general. The amount of gain
or loss recognized by the foreign transferor in connection with the transfer of its
partnership interest is determined under
all relevant provisions of the Internal Revenue Code and the regulations thereunder.
See, e.g., §§1.741-1(a) and 1.751-1(a)(2).
For purposes of this section, the amount of
gain or loss that is treated as capital gain or

1080

capital loss under sections 741 and 751 is
referred to as outside capital gain or outside capital loss, respectively. The amount
of gain or loss that is treated as ordinary
gain or ordinary loss under sections 741
and 751 is referred to as outside ordinary
gain or outside ordinary loss, respectively.
(ii) Nonrecognition provisions. A foreign transferor’s gain or loss recognized
in connection with the transfer of its partnership interest does not include gain or
loss to the extent that the gain or loss is
not recognized by reason of one or more
nonrecognition provisions of the Internal
Revenue Code.
(3) Limitations. For purposes of applying this section, this paragraph (b)(3) limits the amount of gain or loss recognized
by a foreign transferor that may be treated
as effectively connected gain or effectively connected loss.
(i) Capital gain limitation. Outside
capital gain recognized by a foreign transferor is treated as effectively connected
gain to the extent it does not exceed aggregate deemed sale EC capital gain determined under paragraph (c)(3)(ii)(B) of
this section.
(ii) Capital loss limitation. Outside
capital loss recognized by a foreign transferor is treated as effectively connected
loss to the extent it does not exceed aggregate deemed sale EC capital loss determined under paragraph (c)(3)(ii)(B) of
this section.
(iii) Ordinary gain limitation. Outside
ordinary gain recognized by a foreign
transferor is treated as effectively connected gain to the extent it does not exceed aggregate deemed sale EC ordinary
gain determined under paragraph (c)(3)(ii)
(A) of this section.
(iv) Ordinary loss limitation. Outside
ordinary loss recognized by a foreign
transferor is treated as effectively connected loss to the extent it does not exceed
aggregate deemed sale EC ordinary loss
determined under paragraph (c)(3)(ii)(A)
of this section.
(c) Amount treated as effectively connected with the conduct of a trade or
business within the United States. This
paragraph (c) describes the steps to be
followed in computing the limitations described in paragraph (b)(3) of this section.
(1) Step 1: Determine deemed sale gain
and loss. Determine the amount of gain or

Bulletin No. 2020–48

loss that the partnership would recognize
with respect to each of its assets (other
than interests in partnerships described
in paragraph (e) of this section) upon a
deemed sale of all of the partnership’s assets on the date of the transfer of the partnership interest described in paragraph (b)
(1) of this section (deemed sale). For this
purpose, a deemed sale is treated as a sale
by the partnership to an unrelated person
of each of its assets (tangible and intangible) in a fully taxable transaction for cash
in an amount equal to the fair market value
of each asset (taking into account section
7701(g)) immediately before the partner’s
transfer of the interest in the partnership.
For rules concerning the deemed sale of
certain partnership interests, see paragraph (e) of this section.
(2) Step 2: Determine deemed sale EC
gain and loss—(i) In general – (A) Effectively connected determination. With
respect to each asset deemed sold in paragraph (c)(1) of this section, determine the
amount of gain or loss from the deemed
sale that would be treated as effectively
connected gain or effectively connected
loss (including by reason of section 897).
Gain described in this paragraph (c)(2) is
referred to as deemed sale EC gain, and
loss described in this paragraph (c)(2) is
referred to as deemed sale EC loss. Section 864 and the regulations thereunder
apply for purposes of determining whether deemed sale gain or loss would be treated as effectively connected gain or loss.
See paragraph (c)(2)(ii) of this section
for sourcing rules that apply for purposes
of determining deemed sale EC gain and
deemed sale EC loss.
(B) 10-year exception. For purposes
of applying paragraph (c)(2)(i)(A) of this
section, gain or loss from the deemed sale
of an asset (other than a United States
real property interest within the meaning
of section 897(c)) will not be treated as
deemed sale EC gain or deemed sale EC
loss if—
(1) No income or gain produced by the
asset was taxable as income that was effectively connected with the conduct of a
trade or business within the United States
by the partnership (or the foreign transferor, a predecessor of the foreign transferor,
or a predecessor of the partnership) during
the lesser of the ten-year period ending on
the date of the transfer or the period for

Bulletin No. 2020–48

which the partnership (and, if applicable,
the foreign transferor, a predecessor of the
foreign transferor, and a predecessor of
the partnership) held the asset; and
(2) The asset has not been used, or
held for use, in the conduct of a trade or
business within the United States by the
partnership (or the foreign transferor, a
predecessor of the foreign transferor, or a
predecessor of the partnership) during that
same period.
(ii) Sourcing rules for determining
deemed sale EC gain and deemed sale EC
loss—(A) In general. For purposes of applying section 865(e)(2)(A) in connection
with the determination of deemed sale EC
gain and deemed sale EC loss under this
paragraph (c)(2)(ii)(A), except to the extent provided in paragraphs (c)(2)(ii)(B)
through (E) of this section, the deemed
sale of an asset will be treated as attributable to an office or other fixed place of
business maintained by the partnership in
the United States. However, if the partnership does not maintain an office or other
fixed place of business in the United States
(within the meaning of section 864(c)(5)
(A) and §1.864-7), neither the office attribution described in this paragraph (c)
(2)(ii)(A), nor the rules of paragraphs (c)
(2)(ii)(B) through (E) of this section, will
apply.
(B) Look-back rule for sale of inventory property. The deemed sale of inventory property (as defined in section 865(i)
(1)) will not be treated as attributable to
an office or other fixed place of business
maintained by the partnership in the United States to the extent of foreign source
inventory gain or loss. Foreign source inventory gain or loss is determined by multiplying the deemed sale gain or deemed
sale loss attributable to inventory property
by the foreign source inventory ratio. The
foreign source inventory ratio cannot exceed one. If the amount in paragraph (c)
(2)(ii)(B)(1) of this section is not positive,
the foreign source inventory ratio is zero.
If the amount in paragraph (c)(2)(ii)(B)(1)
of this section is positive, but the amount
in in paragraph (c)(2)(ii)(B)(2) of this
section is not positive, the foreign source
inventory ratio is one. The foreign source
inventory ratio is—
(1) The gross income of the partnership
from sources without the United States
(as determined under sections 865(b) and

1081

865(e)(2)) that was attributable to inventory property sold during the lesser of—
(i) The period comprised of the partnership’s three taxable years immediately
preceding the date of the deemed sale, or
(ii) The period beginning on the date
the partnership (or any of its predecessors)
was formed and ending on the last day of
the partnership’s taxable year immediately preceding the date of the deemed sale;
over
(2) The total gross income of the partnership that was attributable to inventory
property sold during that same period.
(C) Look-back rule for intangibles. The
deemed sale of an intangible (as defined in
section 865(d)(2), including going concern
value) will not be treated as attributable to
an office or other fixed place of business
maintained by the partnership in the United States to the extent of foreign source
intangible gain or loss. Foreign source
intangible gain or loss is determined
by multiplying the deemed sale gain or
deemed sale loss from an intangible, without regard to any gain described in section
865(d)(4)(A), by the foreign source intangible ratio. The foreign source intangible
ratio cannot exceed one. If the amount in
paragraph (c)(2)(ii)(C)(1) of this section is
not positive, the foreign source intangible
ratio is zero. If the amount in paragraph
(c)(2)(ii)(C)(1) of this section is positive,
but the amount in in paragraph (c)(2)(ii)
(C)(2) of this section is not positive, the
foreign source inventory ratio is one. The
foreign source intangible ratio is–
(1) The gross ordinary income (other
than from dispositions of depreciable or
amortizable property) of the partnership
from sources without the United States
that was not effectively connected with
the conduct of a trade or business within
the United States, during the lesser of—
(i) The period comprised of the partnership’s three taxable years immediately
preceding the date of the deemed sale, or
(ii) The period beginning on the date
the partnership (or any of its predecessors)
is formed and ending on the last day of
the partnership’s taxable year immediately
preceding the year in which the deemed
sale occurs; over
(2) The total gross ordinary income
(other than from dispositions of depreciable or amortizable property) of the partnership during that period.

November 23, 2020

(D) Depreciable personal property—
(1) Depreciation recapture. The deemed
sale of depreciable personal property (as
defined in section 865(c)(4)(A)), including
from the sale of an amortizable intangible
(as defined in section 865(d)(2)), will not
be treated as attributable to an office or
other fixed place of business maintained
by the partnership in the United States to
the extent the deemed sale gain would be
treated as from sources outside the United
States after applying section 865(c)(1) at
the time of the deemed sale.
(2) Gain in excess of depreciation or
loss with respect to depreciable personal
property. For purposes of this section, if
the deemed sale of depreciable personal
property (other than an amortizable intangible) results in deemed sale gain in
excess of the property’s depreciation adjustments (as defined in section 865(c)(4)
(B)), or results in deemed sale loss, attribution to an office or other fixed place of
business maintained by the partnership
in the United States with respect to the
excess deemed sale gain, or deemed sale
loss, will be determined based on where
the property is located: if the property is
located outside the United States, the excess deemed sale gain, or the deemed sale
loss, will not be treated as attributable to
an office or other fixed place of business
maintained by the partnership in the United States; if the property is located within the United States, the excess deemed
sale gain, or the deemed sale loss, will be
treated as attributable to an office or other
fixed place of business maintained by the
partnership in the United States.
(E) Material change in circumstances
rule. If a material change in circumstances occurred that causes the applicable rule
provided in paragraph (c)(2)(ii)(B) or (C)
of this section to provide a sourcing result
that is materially different from the sourcing result that would occur if the applicable period described in paragraph (c)(2)
(ii)(B)(1) or (c)(2)(ii)(C)(1) of this section
began on the date on which the material change in circumstance occurred and
ended on the last day of the partnership’s
taxable year immediately preceding the
year in which the deemed sale occurs (the
modified look-back period), the applicable
rule provided in paragraph (c)(2)(ii)(B) or
(C) of this section may be applied by reference to the modified look-back period.

November 23, 2020

The difference between the sourcing results is determined by comparing the foreign source inventory ratio (as described
in paragraph (c)(2)(ii)(B) of this section)
or the foreign source intangible ratio (as
described in paragraph (c)(2)(ii)(C) of this
section), as applicable, with the foreign
source inventory ratio or foreign source
intangible ratio, as applicable, if that ratio were determined by reference to the
modified look-back period. For purposes
of this paragraph (c)(2)(ii)(E), the sourcing results will not be materially different
unless the percentage point difference between the ratios described in the preceding
sentence is at least 30 percentage points.
(iii) Examples. This paragraph (c)(2)
(iii) provides examples that illustrate the
rules of paragraph (c)(2)(ii) of this section.
Except as otherwise provided, the following facts apply for purposes of this paragraph (c)(2)(iii). FP is a foreign corporation and a partner in PRS, a partnership
that is engaged in the conduct of a trade or
business within the United States (the U.S.
Business) and a business in Country A (the
Country A Business). Both businesses
purchase inventory property and sell the
purchased inventory property to unrelated
customers; this is the only income-generating activity carried on by the businesses.
PRS maintains an office or fixed place of
business within the U.S. (within the meaning of section 864(c)(5)(A) and §1.864-7)
and, for its U.S. business, PRS sells its inventory property through its U.S. office.
For the Country A business, PRS sells its
inventory property through its Country
A office for consumption in Country A;
PRS’s Country A office materially participates in each sale. The gain or loss from
the inventory sold through PRS’s Country
A office is treated as from sources without the United States and is not effectively
connected with PRS’s U.S. Business. In
year 4, FP sells its entire interest in PRS,
thereby triggering the deemed sale described in paragraph (c)(1) of this section.
In the deemed sale, PRS recognizes $10x
of gain on the sale of its inventory property (the only asset PRS holds other than
goodwill and going concern value). The
10-year exception provided in paragraph
(c)(2)(i)(B) of this section does not apply.
(A) Example 1: Determining foreign source inventory gain–(1) Facts. Based on PRS’s sales records
for the three taxable years immediately preceding the
date of the deemed sale, PRS’s gross income from

1082

sources without the United States that is attributable
to sales of inventory property is $12x and PRS’s total
gross income attributable to sales of inventory property during that period is $30x.
(2) Analysis. To determine foreign source inventory gain or loss described in paragraph (c)(2)
(ii)(B) of this section, the $10x deemed sale gain
attributable to inventory property is multiplied by
PRS’s foreign source inventory ratio. PRS’s foreign
source inventory ratio is PRS’s gross income from
sources without the United States that are attributable to sales of inventory property within PRS’s
three taxable years preceding the date of the deemed
sale, over PRS’s total gross income attributable to
sales of inventory property during the same period.
Thus, based on PRS’s sales records from the three
taxable years preceding the date of the deemed sale,
the foreign source inventory gain for PRS’s inventory is $4x (the $10x deemed sale gain attributable to
inventory multiplied by the foreign source inventory
ratio of $12x over $30x).
(B) Example 2: Determining deemed sale EC
gain attributable to inventory property under the material change in circumstances rule—(1) Facts. The
facts are the same as in paragraph (c)(2)(iii)(A)(1) of
this section (the facts of Example 1 in this paragraph
(c)(2)(iii)), except that at the beginning of year 3
(PRS’s taxable year immediately preceding the date
of the deemed sale), PRS started a new business in
Country B (the Country B Business) to take advantage of favorable market prospects for its products in
Country B. For the Country B Business, PRS sells its
inventory property through its Country B office for
consumption in Country B; PRS’s Country B office
materially participates in each such sale. The gain or
loss from the inventory sold through PRS’s Country B office is foreign source gain or loss. Also, at
the beginning of year 3, PRS substantially reduced
its U.S. Business as a result of market factors. As a
result of these changes in year 3, 95% of PRS’s inventory property is sold in its Country A Business
and Country B Business (collectively, the Foreign
Businesses) beginning on the date in which these
changes occurred; accordingly, 5% of PRS’ inventory property is sold in its U.S. Business after these
changes. Based on PRS’s sales records for the three
taxable years preceding the date of the deemed sale,
PRS’s gross income from sources without the United
States that are attributable to sales of inventory property is $15x and PRS’s total gross income attributable to sales of inventory property during that period
is $30x; for year 3, PRS’s gross income from sources
without the United States that are attributable to sales
of inventory property is $9.5x, and PRS’s total gross
income attributable to sales of inventory property in
Year 3 is $10x.
(2) Analysis. The material change in circumstances rule described in paragraph (c)(2)(ii)(E) of
this section applies if due to a material change in circumstances, the sourcing rule provided in paragraph
(c)(2)(ii)(B) of this section provides a sourcing result
that is materially different from the sourcing result
that would occur if that sourcing rule was applied
by reference to the modified look-back period; that
is, the period beginning on the date in which a material chance in circumstances occurred and ending on
the last day of the PRS’s taxable year immediately
preceding the date of the deemed sale. For this pur-

Bulletin No. 2020–48

pose, the reduction in PRS’s U.S. business in year 3,
coupled with the creation of the Country B Business
in the same year, qualifies as a material change in
circumstances. Thus, the modified look-back period
consists of year 3; that is, the period starting at the
beginning of year 3, the date in which the material change in circumstances occurred, and ending of
the last day of year 3, the last day of PRS’s taxable
year immediately preceding the date of the deemed
sale. Based on PRS’s sales records for the three taxable years preceding the deemed sale, the foreign
source inventory ratio, expressed as a percentage,
is 50% ($15x attributable to PRS’s gross income
from sources without the United States with respect
to sales of its inventory property, over $30x attributable to PRS’s total gross income with respect to
sales of its inventory property). Due to the material
change in circumstances, however, 95% of PRS’s
inventory property is sold in its Foreign Businesses. ($9.5x attributable to PRS’s gross income from
sources without the United States with respect to
sales of its inventory property, over $10x attributable to PRS’s total gross income with respect to
sales of its inventory property.) Accordingly, if PRS
applied the sourcing rule provided in paragraph (c)
(2)(ii)(B) of this section by reference to the modified look-back period, 95% ($9.5x/$10x), or $9.5x,
of the gain would be attributable to sales for PRS’s
Foreign Businesses (gain from sources without the
United States), and only 5% ($.5x/$10x), or $0.5x,
of the gain would be attributable to sales for PRS’s
U.S. Business (gain from United States sources). The
excess of the foreign source inventory ratio determined by reference to the modified look-back period
(expressed as a percentage), over the foreign source
inventory ratio (also expressed as a percentage) is
45%; that is 95% (as determined under the modified
look-back period) minus 50% (as determined under
the foreign source inventory ratio). Accordingly, the
sourcing results are materially different because the
45 percentage point difference is greater than the 30
percentage point threshold provided in paragraph (c)
(2)(ii)(E) of this section. Thus, the material change
in circumstances rule of paragraph (c)(2)(ii)(E) of
this section applies and the foreign source inventory gain determined under paragraph (c)(2)(ii)(B) of
this section, determined by reference to the modified
look-back period, is $9.5x; that is, the deemed sale
gain attributable to inventory property ($10x), multiplied by the foreign source inventory ratio determined by reference to the modified look-back period
($9.5x/$10x).

(3) Step 3: Determine the foreign
transferor’s distributive share of deemed
sale EC gain or deemed sale EC loss—
(i) In general. A foreign transferor’s distributive share of deemed sale EC gain or
deemed sale EC loss with respect to each
asset is the amount of the deemed sale EC
gain and deemed sale EC loss determined
under paragraph (c)(2) of this section that
would have been allocated to the foreign
transferor by the partnership under all applicable Internal Revenue Code sections
(including section 704) upon the deemed
sale described in paragraph (c)(1) of this

Bulletin No. 2020–48

section, taking into account allocations of
tax items applying the principles of section 704(c), including any remedial allocations (see §1.704-3(d)), and any section
743(b) basis adjustments (see §1.743-1(j)
(3)). For this purpose, a foreign transferor’s distributive share of deemed sale EC
gain or deemed sale EC loss does not include any amount that is excluded from the
foreign transferor’s gross income or otherwise exempt from U.S. Federal income
tax by reason of an applicable provision of
the Internal Revenue Code (including, for
example, by reason of section 864(b)(2),
872(b), or 883). Similarly, a foreign transferor’s distributive share of deemed sale
EC gain or deemed sale EC loss does not
include any amount to which an exception
under section 897 applies, such as section
897(k) or section 897(l), if that amount is
not otherwise treated as effectively connected under a provision of the Code.
For rules regarding the determination of
a foreign transferor’s distributive share of
deemed sale EC gain and deemed sale EC
loss under an applicable U.S. income tax
treaty, see paragraph (f) of this section.
(ii) Aggregate deemed sale EC items—
(A) Ordinary gain or loss. A foreign
transferor’s aggregate deemed sale EC
ordinary gain (if the net aggregate of the
foreign transferor’s distributive share of
the deemed sale EC ordinary gain and
loss is a gain) or aggregate deemed sale
EC ordinary loss (if the net aggregate of
the foreign transferor’s distributive share
of the deemed sale EC ordinary gain and
loss is a loss) is determined by taking into
account—
(1) The portion of the foreign transferor’s distributive share of deemed sale
EC gain and deemed sale EC loss that is
attributable to the deemed sale of the partnership’s assets that are section 751(a)
property; and
(2) Deemed sale EC gain and deemed
sale EC loss from the deemed sale of assets that are section 751(a) property that
would be allocated to the foreign transferor with respect to interests in partnerships
that are engaged in the conduct of a trade
or business within the United States under
paragraph (e)(1)(ii) of this section upon
the deemed asset sales described in paragraph (e)(1)(i) of this section.
(B) Capital gain or loss. A foreign
transferor’s aggregate deemed sale EC

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capital gain (if the net aggregate of the
foreign transferor’s distributive share of
the deemed sale EC capital gain and loss
is a gain) or aggregate deemed sale EC
capital loss (if the net aggregate of the
foreign transferor’s distributive share of
the deemed sale EC capital gain and loss
is a loss) is determined by taking into account—
(1) The portion of the foreign transferor’s distributive share of deemed sale EC
gain and deemed sale EC loss that is attributable to the deemed sale of assets that
are not section 751(a) property; and
(2) Deemed sale EC gain and deemed
sale EC loss from the sale of assets that are
not section 751(a) property and that would
be allocated to the foreign transferor with
respect to all interests in partnerships that
are engaged in the conduct of a trade or
business within the United States under
paragraph (e)(1)(ii) of this section upon
the deemed asset sales described in paragraph (e)(1)(i) of this section.
(iii) Partial transfers. If a foreign transferor transfers less than all of its interest in
a partnership, then for purposes of paragraph (c)(3)(i) of this section, the foreign
transferor’s distributive share of deemed
sale EC gain and deemed sale EC loss is
determined by reference to the amount of
deemed sale EC gain or deemed sale EC
loss determined under paragraph (c)(3)
(i) of this section that is attributable to the
portion of the foreign transferor’s partnership interest that was transferred.
(d) Coordination with section 897. If a
foreign transferor transfers an interest in a
partnership in a transfer that is subject to
section 864(c)(8) and the partnership owns
one or more United States real property
interests (as defined in section 897(c)),
then the foreign transferor determines its
effectively connected gain and effectively
connected loss under this section, and not
pursuant to section 897(g). Accordingly,
with respect to a transfer that is subject
to section 864(c)(8), section 864(c)(8)(C)
does not reduce the amount of gain or loss
treated as effectively connected gain or
loss under this section. For rules regarding
a transfer not subject to section 864(c)(8)
of an interest in a partnership that owns
one or more United States real property
interests, see section 897(g) and the regulations thereunder. If a foreign transferor
transfers an interest in a partnership in the

November 23, 2020

manner described in paragraph (b)(2)(ii)
of this section, the transfer is treated as not
subject to section 864(c)(8) to the extent
of the gain or loss that is not recognized;
instead, if the partnership owns one or
more United States real property interests
at the time of transfer, the rules of section
897(g) and the regulations thereunder apply to the unrecognized gain or loss.
(e) Tiered partnerships—(1) Transfers
of upper-tier partnerships. Assets sold in
a deemed sale described in paragraph (c)
(1) of this section do not include interests
in partnerships that are engaged in the
conduct of a trade or business within the
United States or interests in partnerships
that hold, directly or indirectly, partnerships that are engaged in the conduct of a
trade or business within the United States.
Rather, if a foreign transferor transfers an
interest in a partnership (upper-tier partnership) that owns, directly or indirectly,
an interest in one or more partnerships that
are engaged in the conduct of a trade or
business within the United States, then—
(i) Beginning with the lowest-tier partnership that is engaged in the conduct of a
trade or business within the United States
in a chain of partnerships and going up the
chain, each partnership that is engaged in
the conduct of a trade or business within
the United States is treated as selling its
assets in a deemed sale in accordance with
the principles of paragraph (c)(1) of this
section; and
(ii) Each partnership must determine
its deemed sale EC gain and deemed sale
EC loss in accordance with the principles
of paragraph (c)(2) of this section, and determine the distributive share of deemed
sale EC gain and deemed sale EC loss for
each partner that is either a partnership (in
which the foreign transferor is a direct or
indirect partner) or a foreign transferor,
in accordance with the principles of paragraph (c)(3)(i) of this section.
(2) Transfers by upper-tier partnerships. If a foreign transferor is a direct or
indirect partner in an upper-tier partnership
and the upper-tier partnership transfers an
interest in a partnership that is engaged in
the conduct of a trade or business within
the United States (including a partnership
held indirectly through one or more partnerships), then the principles of this section
(including paragraph (e)(1) of this section)
apply with respect to the gain or loss on

November 23, 2020

the transfer that is allocated to the foreign
transferor by the upper-tier partnership.
(3) Coordination with section 897. For
purposes of this paragraph (e), a lower-tier
partnership that holds one or more United
States real property interests is treated as
engaged in the conduct of a trade or business within the United States.
(f) Treaty coordination. This paragraph (f) describes how paragraph (c)
(3) of this section applies in the case of
a transfer of an interest in a partnership
by a foreign transferor that is eligible for
benefits under an applicable U.S. income
tax treaty. As a general matter, a foreign
transferor must satisfy the requirements
of the limitation on benefits article, if
any, in the treaty between the jurisdiction
in which the transferor is resident and
the United States to be eligible for treaty
benefits. In the case of a foreign transferor that is entitled to treaty benefits, in
determining the foreign transferor’s distributive share of deemed sale EC gain
and deemed sale EC loss, gain or loss
derived by the foreign transferor attributable to assets deemed sold that would
be exempt from tax under an applicable
U.S. income tax treaty if disposed of by
the partnership are not taken into account
under paragraph (c)(3) of this section. In
general, gain or loss on the alienation of
a partnership interest will be treated as
effectively connected gain or loss under section 864(c)(8) to the extent that
the gain or loss is either attributable to
assets forming part of a U.S. permanent
establishment or fixed place of business,
or taxable under a provision governing the disposition of United States real
property interests. Gain or loss from the
alienation of a partnership interest will
be considered gain or loss attributable to
the alienation of assets forming part of a
permanent establishment or fixed place
of business in the United States to the extent the assets deemed sold under section
864(c)(8) form a part of the U.S. permanent establishment or fixed place of business of the partnership. If, however, after applying treaty benefits in paragraph
(c)(3) of this section, the only gains or
losses that would be taken into account
are gains or losses attributable to United
States real property interests, the foreign
transferor determines its effectively connected gain and effectively connected

1084

loss pursuant to section 897 and not under this section.
(g) Definitions. The following definitions apply for purposes of this section.
(1) Effectively connected gain. The
term effectively connected gain means
gain that is treated as effectively connected with the conduct of a trade or business
within the United States.
(2) Effectively connected loss. The
term effectively connected loss means loss
treated as effectively connected with the
conduct of a trade or business within the
United States.
(3) Foreign transferor. The term foreign transferor means a nonresident alien
individual or foreign corporation.
(4) Section 751(a) property. The term
section 751(a) property means unrealized
receivables described in section 751(c)
and inventory items described in section
751(d).
(5) Transfer. The term transfer means
a sale, exchange, or other disposition, and
includes a distribution from a partnership
to a partner to the extent that gain or loss
is recognized on the distribution, as well
as a transfer treated as a sale or exchange
under section 707(a)(2)(B).
(h) Anti-stuffing rule. If a foreign transferor (or a person that is related to a foreign transferor within the meaning of section 267(b) or 707(b)) transfers property
(including another partnership interest) to
a partnership in a transaction with a principal purpose of reducing the amount of
gain treated as effectively connected gain,
or increasing the amount of loss treated as
effectively connected loss, under section
864(c)(8) or section 897, the transfer is
disregarded for purposes of section 864(c)
(8) or section 897, as appropriate.
(i) Examples. This paragraph (i) provides examples that illustrate the rules
of this section. Except as otherwise provided, the following facts are presumed
for purposes of this paragraph (i). FP is
a foreign corporation. USP is a domestic
corporation. PRS is a partnership that was
formed on January 1, 2018, when FP and
USP each contributed $100x in cash. PRS
has made no distributions and received no
contributions other than those described in
the preceding sentence. FP’s adjusted basis in its interest in PRS is $100x. X is a
foreign corporation that is unrelated to FP,
USP, or PRS. Upon the formation of PRS,

Bulletin No. 2020–48

FP and USP entered into an agreement
providing that all income, gain, loss, and
deduction of PRS will be allocated equally between FP and USP. PRS is engaged in
the conduct of a trade or business within
the United States (the U.S. Business) and
an unrelated business in Country A (the

U.S. Business section 1231 asset

Country A Business). In a deemed sale described in paragraph (c)(1) of this section,
gain or loss on assets of the U.S. Business
would be treated as effectively connected
gain or effectively connected loss, and
gain or loss on assets of the Country A
Business would not be so treated (includ-

ing by reason of paragraph (c)(2)(i)(B) of
this section). PRS has no liabilities.
(1) Example 1. Deemed sale limitation—(i)
Facts. On January 1, 2019, FP sells its entire interest
in PRS to X for $105x. FP does not qualify for the
benefits of an income tax treaty between the United
States and another country. Immediately before the
sale, PRS’s balance sheet appears as follows:

Adjusted Basis

Fair Market Value

$100x

$104x

Country A Business capital asset

100x

106x

Total

$200x

$210x

(ii) Analysis—(A) Outside gain or loss. FP is a
foreign transferor (within the meaning of paragraph
(g)(3) of this section) and transfers (within the meaning of paragraph (g)(5) of this section) its interest
in PRS to X. For purposes of this example, for simplicity, PRS is assumed to hold no section 751(a)
property and depreciation recapture is assumed to
be zero. FP recognizes a $5x capital gain under section 741, which is an outside capital gain within the
meaning of paragraph (b)(2)(i) of this section. Under paragraph (b)(1) of this section, FP’s $5x capital
gain is treated as effectively connected gain to the
extent that it does not exceed the limitation described
in paragraph (b)(3)(i) of this section, which is FP’s
aggregate deemed sale EC capital gain.

(B) Deemed sale. FP’s aggregate deemed sale
EC capital gain is determined according to the
three-step process set forth in paragraph (c) of this
section. First, the amount of gain or loss that PRS
would recognize with respect to each of its assets
upon a deemed sale described in paragraph (c)(1)
of this section is a $4x gain with respect to the
U.S. Business section 1231 asset and a $6x gain
with respect to the Country A Business capital asset. Second, under paragraph (c)(2) of this section,
PRS’s deemed sale EC gain is $4x. Third, under
paragraph (c)(3)(ii)(B) of this section, FP’s aggregate deemed sale EC capital gain is $2x (that is, the
aggregate of its distributive share of deemed sale
EC gain attributable to the deemed sale of assets

that are not section 751(a) property, which is 50%
of $4x).
(C) Limitation. Under paragraph (b)(3)(i) of this
section, the $5x outside capital gain recognized by
FP is treated as effectively connected gain to the
extent that it does not exceed FP’s $2x aggregate
deemed sale EC capital gain. Accordingly, FP recognizes $2x of capital gain that is treated as effectively
connected gain.
(2) Example 2. Outside gain limitation—(i)
Facts. On January 1, 2019, FP sells its entire interest
in PRS to X for $110x. FP does not qualify for the
benefits of an income tax treaty between the United
States and another country. Immediately before the
sale, PRS’s balance sheet appears as follows:

Adjusted Basis

Fair Market Value

U.S. Business section 1231 asset

$100x

$150x

Country A Business capital asset

100x

70x

Total

$200x

$220x

(ii) Analysis—(A) Outside gain or loss. FP is
a foreign transferor (within the meaning of paragraph (g)(3) of this section) and transfers (within
the meaning of paragraph (g)(5) of this section)
its interest in PRS to X. For purposes of this example, for simplicity, PRS is assumed to hold no
section 751(a) property and depreciation recapture
is assumed to be zero. FP recognizes a $10x capital
gain under section 741, which is an outside capital
gain within the meaning of paragraph (b)(2)(i) of
this section. Under paragraph (b)(1) of this section,
FP’s $10x capital gain is treated as effectively connected gain to the extent that it does not exceed the
limitation described in paragraph (b)(3)(i) of this
section, which is FP’s aggregate deemed sale EC
capital gain.

(B) Deemed sale. FP’s aggregate deemed sale
EC capital gain is determined according to the threestep process set forth in paragraph (c) of this section. First, the amount of gain or loss that PRS would
recognize with respect to each of its assets upon a
deemed sale described in paragraph (c)(1) of this
section is a $50x gain with respect to the U.S. Business section 1231 asset and a $30x loss with respect
to the Country A Business capital asset. Second, under paragraph (c)(2) of this section, PRS’s deemed
sale EC gain is $50x. Third, under paragraph (c)(3)
(ii)(B) of this section, FP’s aggregate deemed sale
EC capital gain is $25x (that is, the aggregate of its
distributive share of deemed sale EC gain attributable to the deemed sale of assets that are not section
751(a) property, which is 50% of $50x).

(C) Limitation. Under paragraph (b)(3)(i) of this
section, the $10x outside capital gain recognized
by FP is treated as effectively connected gain to the
extent that it does not exceed FP’s $25x aggregate
deemed sale EC capital gain. Accordingly, FP recognizes $10x of capital gain that is treated as effectively connected gain.
(3) Example 3. Interaction with section 751(a)—
(i) Facts. On January 1, 2019, FP sells its entire interest in PRS to X for $95x. FP does not qualify
for the benefits of an income tax treaty between the
United States and another country. Through both its
U.S. Business and its Country A Business, PRS holds
inventory items and receivables that are section 751
property (as defined in §1.751-1(a)). Immediately before the sale, PRS’s balance sheet appears as follows:

Adjusted Basis

Fair Market Value

$20x

$50x

U.S. Business inventory and receivables

30x

50x

Country A Business capital asset

100x

80x

U.S. Business section 1231 asset

Country A Business inventory

50x

10x

Total

$200x

$190x

Bulletin No. 2020–48

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November 23, 2020

(ii) Analysis—(A) Outside gain or loss. FP is a
foreign transferor (within the meaning of paragraph
(g)(3) of this section) and transfers (within the meaning of paragraph (g)(5) of this section) its interest in
PRS to X. Under sections 741 and 751, FP recognizes a $10x ordinary loss and a $5x capital gain.
See §1.751-1(a). Under paragraph (b)(2)(i) of this
section, FP has outside ordinary loss equal to $10x
and outside capital gain equal to $5x. Under paragraph (b)(1) of this section, FP’s outside ordinary

loss and outside capital gain are treated as effectively
connected loss and effectively connected gain to the
extent that each does not exceed the applicable limitation described in paragraph (b)(3) of this section.
In the case of FP’s outside ordinary loss, the applicable limitation is FP’s aggregate deemed sale EC
ordinary loss. In the case of FP’s outside capital gain,
the applicable limitation is FP’s aggregate deemed
sale EC capital gain.

Asset

(B) Deemed sale. FP’s aggregate deemed sale EC
ordinary loss and aggregate deemed sale EC capital
gain are determined according to the three-step process set forth in paragraph (c) of this section.
(1) Step 1. The amount of gain or loss that PRS
would recognize with respect to each of its assets
upon a deemed sale described in paragraph (c)(1) of
this section is as follows:

Gain/(Loss)

U.S. Business section 1231 asset

$30x

U.S. Business inventory and receivables

20x

Country A Business capital asset

(20x)

Country A Business inventory

(40x)

(2) Step 2. Under paragraph (c)(2) of this section,
PRS’s deemed sale EC gain and deemed sale EC loss

must be determined with respect to each asset. The

Asset

amounts determined under paragraph (c)(2) of this
section are as follows:

Deemed Sale EC Gain/(Loss)

U.S. Business section 1231 asset

$30x

U.S. Business inventory and receivables

20x

Country A Business capital asset

0

Country A Business inventory

0

(3) Step 3. Under paragraph (c)(3)(ii)(B) of this
section, FP’s aggregate deemed sale EC capital gain
is $15x (that is, the aggregate of its distributive
share of deemed sale EC gain that is attributable to
the deemed sale of assets that are not section 751(a)
property, which is 50% of $30x) and FP’s aggregate
deemed sale EC ordinary loss is $0 (that is, the aggregate of its distributive share of deemed sale EC
loss that is attributable to the deemed sale of assets
that are section 751(a) property).

U.S. Business section 1231 asset

(C) Limitation—(i) Capital gain. Under paragraph (b)(3)(i) of this section, the $5x outside capital gain recognized by FP is treated as effectively
connected gain to the extent that it does not exceed
FP’s $15x aggregate deemed sale EC capital gain.
Accordingly, the amount of FP’s capital gain that is
treated as effectively connected gain is $5x.
(ii) Ordinary loss. Under paragraph (b)(3)(iv) of
this section, the $10x outside ordinary loss recognized by FP is treated as effectively connected loss

to the extent that it does not exceed FP’s $0 aggregate deemed sale EC ordinary loss. Accordingly, the
amount of FP’s ordinary loss that is treated as effectively connected loss is $0.
(4) Example 4. Coordination with income tax
treaties—(i) Facts—(A) Sale of interest. On January
1, 2019, FP sells its entire interest in PRS to X for
$105x. Immediately before the sale, PRS’s balance
sheet appears as follows:

Adjusted Basis

Fair Market Value

$100x

$104x

Country A Business capital asset

100x

106x

Total

$200x

$210x

(B) Treaty benefits. FP is a qualified resident of
Country A under a U.S. income tax treaty between
the United States and Country A that is similar or
identical in all material respects to the 2006 U.S.
Model Income Tax Convention (the Treaty). PRS is
treated as fiscally transparent for purposes of Country A tax law. PRS does not carry on its U.S. Business through a U.S. permanent establishment (PE).
(ii) Analysis—(A) Outside gain or loss. FP is a
foreign transferor (within the meaning of paragraph
(g)(3) of this section) and transfers (within the mean-

ing of paragraph (g)(5) of this section) its interest
in PRS to X. For purposes of this example, for simplicity, PRS is assumed to hold no section 751(a)
property and depreciation recapture is assumed to
be zero. FP recognizes a $5x capital gain under section 741, which is an outside capital gain within the
meaning of paragraph (b)(2)(i) of this section. Under paragraph (b)(1) of this section, FP’s $5x capital
gain is treated as effectively connected gain to the
extent that it does not exceed the limitation described

Asset

in paragraph (b)(3)(i) of this section, which is FP’s
aggregate deemed sale EC capital gain.
(B) Deemed sale. FP’s aggregate deemed sale EC
capital gain is determined according to the three-step
process set forth in paragraph (c) of this section by
taking into account the treaty coordination rule under
paragraph (f) of this section.
(1) Step 1. The amount of gain or loss that PRS
would recognize with respect to each of its assets
upon a deemed sale described in paragraph (c)(1) of
this section is as follows:
Gain/(Loss)

U.S. Business section 1231 asset

$4x

Country A Business capital asset

6x

November 23, 2020

1086

Bulletin No. 2020–48

(2) Step 2. Under paragraph (c)(2) of this section, PRS’s deemed sale EC gain is as follows:
Asset

Gain/(Loss)

U.S. Business section 1231 asset

$4x

Country A Business capital asset

0x

(3) Step 3. FP is eligible for benefits under the
Treaty and derives the gain on the deemed sale of
U.S. Business section 1231 asset. Under paragraph
(c)(3)(i) and paragraph (f) of this section, because
gain from the disposition of the U.S. Business section 1231 asset does not form part of a U.S. PE, the
gain is exempt from U.S. tax under the Treaty, and is
not taken into account in determining FP’s distributive share of deemed sale EC gain under paragraphs
(c)(3)(i) and paragraph (f) of this section. Therefore,
FP’s aggregate deemed sale EC capital gain is $0x
under paragraph (c)(3)(ii)(B) of this section.
(C) Limitation. Under paragraph (b)(3)(i) of this
section, the $5x outside capital gain recognized by
FP is not treated as effectively connected gain since
all of it would exceed FP’s $0x aggregate deemed
sale EC capital gain.

(j) Applicability date. This section applies to transfers occurring on or after December 26, 2018, and to amounts received
on or after December 26, 2018, pursuant
to an installment sale (as defined in section 453(b)) occurring on or after November 27, 2017.
Par. 3. Section 1.897-7 is added to read
as follows:
§1.897-7 Treatment of certain
partnership interests, trusts and estates
under section 897(g).
(a) through (b) [Reserved]. For further
guidance, see § 1.897-7T(a) through (b).
(c) Coordination with section 864(c)
(8). Except as provided in §1.864(c)(8)1, the amount of any money, and the fair
market value of any property, received
by a nonresident alien individual or foreign corporation in exchange for all or
part of its interest in a partnership, trust,
or estate will, to the extent attributable to
United States real property interests, be
considered as an amount received from
the sale or exchange in the United States
of such property. See also §1.864(c)(8)1(h) for an anti-stuffing rule that may
apply to transactions subject to section
897. This paragraph applies to transfers occurring on or after December 26,
2018, and to amounts received on or after December 26, 2018, pursuant to an
installment sale (as defined in section

Bulletin No. 2020–48

453(b)) occurring on or after November
27, 2017.
Par. 4. Section 1.897-7T is amended by
adding paragraph (c) to read as follows:
§1.897-7T Treatment of certain
partnership interests as entirely U.S. real
property interests under sections 897(g)
and 1445(e) (temporary).
*****
(c) Coordination with section 864(c)
(8). [Reserved]. For further guidance, see
§1.897-7(c).
Sunita Lough,
Deputy Commissioner for Services
and Enforcement.
Approved: September 10, 2020.
David J. Kautter,
Assistant Secretary of the Treasury
(Tax Policy).
(Filed by the Office of the Federal Register on November 05, 2020, 8:45 a.m., and published in the issue of the Federal Register for November 06, 2020,
85 F.R. 70958)

26 CFR § 54.9815-2713

T.D. 9931
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 54
DEPARTMENT OF THE
TREASURY
Office of the Secretary
31 CFR Part 33
DEPARTMENT OF HEALTH
AND HUMAN SERVICES
1087

Centers for Medicare &
Medicaid Services
42 CFR Parts 410, 411,
414, 417, 433, and 510
Office of the Secretary
45 CFR Parts 147, 155
and 182
[CMS-9912-IFC]
Additional Policy and
Regulatory Revisions in
Response to the COVID-19
Public Health Emergency
AGENCY: Centers for Medicare &
Medicaid Services (CMS), Department
of Health and Human Services (HHS);
Internal Revenue Service, Department
of the Treasury; Employee Benefits Security Administration, Department of
Labor.
ACTION: Interim final rule with request
for comments.
SUMMARY: * * *
This rule also amends regulations regarding coverage of preventive health services
to implement section 3203 of the CARES
Act, which shortens the timeframe within which non-grandfathered group health
plans and health insurance issuers offering non-grandfathered group or individual health insurance coverage must begin
to cover without cost sharing qualifying
coronavirus preventive services, including recommended COVID-19 immunizations. This IFC also revises regulations to
set forth flexibilities in the public notice
requirements and post award public participation requirements for State Innovation Waivers under section 1332 of the Patient Protection and Affordable Care Act
(PPACA) during the public health emergency for COVID‑19.

November 23, 2020

DATES: Effective date: These regulations
are effective on [Insert the date of display
for public inspection at the Office of the
Federal Register], except for amendatory
instructions 36 and 37, which are effective
on January 1, 2021.
Applicability date: Except as otherwise specified in this paragraph, these
regulations are applicable from [Insert
the date of display for public inspection
at the Office of the Federal Register]
until the end of the public health emergency for COVID-19 as determined
by the HHS Secretary. The regulations
at 42 CFR 410.57, 410.152, 410.160,
411.15, 414.701, 414.707, 414.900, and
414.904 and at 42 CFR part 510 (other
than 42 CFR 510.300(a)(1)(i) and (iii))
are applicable [Insert the date of display for public inspection at the Office
of the Federal Register]. Because the
requirement at section 6008(b)(3) of the
Families First Coronavirus Response
Act (FFCRA) is not limited to the duration of the public health emergency
for COVID-19, regulations at 42 CFR
part 433, subpart G, apply from [Insert
the date of display for public inspection
at the Office of the Federal Register]
through the end of the last month of the
public health emergency for COVID-19
in accordance with section 6008(b)(3) of
the Families First Coronavirus Response
Act. Regulations at 42 CFR 510.300(a)
(1)(i) and (a)(1)(iii) are applicable October 1, 2020.
Comment date: To be assured consideration, comments must be received at one
of the addresses provided below, no later
than 5 p.m. on [Insert date 60 days after
date of display in the Federal Register].
ADDRESSES: In commenting, please refer to file code CMS‑9912‑IFC.
Comments, including mass comment
submissions, must be submitted in one of
the following three ways (please choose
only one of the ways listed):
1. Electronically. You may submit
electronic comments on this regulation to
http://www.regulations.gov. Follow the
“Submit a comment” instructions.
2. By regular mail. You may mail written comments to the following address
ONLY:
Centers for Medicare & Medicaid Services,

November 23, 2020

Department of Health and Human Services,
Attention: CMS-9912-IFC,
P.O. Box 8016,
Baltimore, MD 21244-8016.
Please allow sufficient time for mailed
comments to be received before the close
of the comment period.
3. By express or overnight mail. You
may send written comments to the following address ONLY:
Centers for Medicare & Medicaid Services,
Department of Health and Human Services,
Attention: CMS-9912-IFC,
Mail Stop C4-26-05,
7500 Security Boulevard,
Baltimore, MD 21244-1850
For information on viewing public
comments, see the beginning of the “SUPPLEMENTARY INFORMATION” section.
FOR FURTHER INFORMATION
CONTACT: * * *
Lina Rashid, (443) 902-2823, or Michelle Koltov, (301) 492-4225, Centers for
Medicare & Medicaid Services, Department of Health and Human Services, Services, Kimberly Koch, (202) 622-0854,
Department of the Treasury, for issues related to State Innovation Waivers Policy
and Regulatory Revisions in Response to
the COVID-19 Public Health Emergency
***
David Mlawsky, (410) 786–1565,
Centers for Medicare & Medicaid Services, Department of Health and Human
Services, Elizabeth Schumacher, (202)
693–8335, Employee Benefits Security
Administration, Department of Labor,
Dara Alderman, (202) 317-5500, Internal
Revenue Service, Department of the Treasury, for issues related to Rapid Coverage
of Preventive Services for Coronavirus.
***
SUPPLEMENTARY INFORMATION:
Inspection of Public Comments: All
comments received before the close of the
comment period are available for viewing
by the public, including any personally
identifiable or confidential business information that is included in a comment.
We post all comments received before the

1088

close of the comment period on the following website as soon as possible after
they have been received: http://regulations.gov. Follow the search instructions
on that website to view public comments.
Background
The United States is responding to an
outbreak of respiratory disease caused by
a novel coronavirus that was first detected in China and has now been detected in
more than 190 countries internationally,
and all 50 States, the District of Columbia,
and U.S. territories. The virus has been
named “severe acute respiratory syndrome
coronavirus 2” (“SARS-CoV-2”) and the
disease it causes has been named “coronavirus disease 2019” (“COVID-19”).
On January 30, 2020, the International Health Regulations Emergency Committee of the World Health Organization
(WHO) declared the outbreak a “Public
Health Emergency of International Concern.” On January 31, 2020, pursuant to
section 319 of the Public Health Service
(PHS) Act (42 U.S.C. 247d), the Health
and Human Services Secretary (the Secretary) determined that a public health emergency (PHE) exists for the United States
to aid the nation’s health care community
in responding to COVID-19 (hereafter referred to as the PHE for COVID‑19). On
March 11, 2020, the WHO publicly declared COVID-19 a pandemic. On March
13, 2020, President Donald J. Trump (the
President) declared the COVID-19 pandemic a national emergency. Effective
October 23, 2020, the Secretary renewed
the January 31, 2020 determination that
was previously renewed on April 21, 2020
and July 23, 2020 that a PHE exists and
has existed since January 27, 2020.
The Administration is committed to
ensuring that Americans have access to
a COVID-19 vaccine through Operation
Warp Speed, a partnership among components of the HHS, including the Centers for Disease Control and Prevention
(CDC), the Food and Drug Administration
(FDA), the National Institutes of Health
(NIH), and the Biomedical Advanced
Research and Development Authority
(BARDA). Operation Warp Speed engages with private firms and other Federal agencies, including the Department of
Defense (DoD), Department of Agricul-

Bulletin No. 2020–48

ture, the Department of Energy, and the
Department of Veterans Affairs. Through
the work of the Federal Government and
the private sector, Operation Warp Speed
seeks to accelerate the development, manufacture, and distribution of a COVID-19
vaccine to the American people.
The CDC has reported that some people are at higher risk of severe illness from
COVID-19.1 These higher-risk categories
include:
• Older adults, with risk increasing by
age.
• People who have serious chronic
medical conditions such as:
++ Obesity.
++ Cardiovascular disease.
++ Diabetes mellitus.
++ Hypertension.
++ Chronic lung disease.
++ Neurologic/Neurodevelopmental
disability.2
++ Immunocompromised individuals.
• Residents of Long Term Care (LTC)
facilities, including nursing homes, Intermediate Care Facilities for Individuals
with Intellectual and Developmental Disabilities (ICF/IIDs), inpatient psychiatric
and substance abuse treatment facilities
including Institutions for Mental Disease (IMDs) & Psychiatric Residential
Treatment Facilities (PRTFs), assisted
living facilities, group homes for individuals with developmental disabilities and
board-and-care facilities.3
As the health care community implements and updates recommended prevention and control practices, regulatory agencies operating under appropriate
waiver authority granted by the PHE for
COVID-19 are also working to revise
and implement regulations that support
these health care community infection
prevention and treatment practices. Based
on the current and projected increases in
the incidence rate of COVID-19 in the
US, observed fatalities in the older adult
population, and the impact on health care
workers at increased risk due to treating
special populations, CMS4 is reviewing
and revising regulations, as appropriate,
to offer states, providers, suppliers, and

group health plans and health insurance
issuers additional flexibilities in furnishing and providing services to combat the
PHE for COVID-19 and to address and
minimize the unique impact of the PHE
for COVID-19 on other regulatory provisions.
CMS addressed additional policies
in three previous interim final rules with
comment period (IFCs). The “Medicare and Medicaid Programs; Policy and
Regulatory Revisions in Response to the
COVID-19 Public Health Emergency”
IFC appeared in the April 6, 2020 Federal Register (85 FR 19230) with an effective date of March 31, 2020, and the
“Medicare and Medicaid Programs, Basic
Health Program, and Exchanges; Additional Policy and Regulatory Revisions in
Response to the COVID-19 Public Health
Emergency and Delay of Certain Reporting Requirements for the Skilled Nursing
Facility Quality Reporting Program” IFC
appeared in the May 8, 2020 Federal
Register (85 FR 27550) with an effective
date of May 8, 2020. The “Medicare and
Medicaid Programs, Clinical Laboratory
Improvement Amendments, and Patient
Protection and Affordable Care Act: Additional Policy and Regulatory Revisions
in Response to the COVID-19 Public
Health Emergency” IFC appeared in the
September 2, 2020 Federal Register (85
FR 54820) with an effective date of September 2, 2020.
This IFC implements a number of measures intended to further the Administration’s commitment to ensure every American has timely access to a COVID-19
vaccine without any out-of-pocket expenses, no matter their source of coverage, or whether they are covered at all.
***
In this IFC, HHS and the Departments
of Labor and the Treasury (referred to
collectively as “the Departments”) clarify
certain aspects of coverage of preventive
services without cost sharing under the
current regulations implementing section
2713 of the Public Health Service (PHS)
Act, as added by PPACA and incorporated into the Employee Retirement Income

Security Act of 1974 (ERISA) by section
715 of ERISA and into the Internal Revenue Code (the Code) by section 9815 of
the Code. The Departments also amend
those regulations to implement the unique
requirements related to rapid coverage of
qualifying coronavirus preventive services
under section 3203 of the CARES Act.
Specifically, this IFC clarifies that plans
and issuers subject to section 2713 of the
PHS Act must cover without cost sharing
recommended immunizations as well as
the administration of such immunizations,
regardless of how the administration is
billed. This IFC also defines qualifying
coronavirus preventive services consistent with the definition provided in section
3203 of the CARES Act and clarifies that
plans and issuers subject to section 2713
of the PHS Act must cover recommended immunizations for COVID-19 that are
qualifying coronavirus preventive services, even if not listed for routine use on
the Immunization Schedules of the CDC.
Due to the urgent need to ensure coverage of and access to qualifying coronavirus preventive services, and to ensure that
participants, beneficiaries, and enrollees
can access qualifying coronavirus preventive services on the expedited basis
specified by statute, this IFC also provides
that during the PHE for COVID-19, plans
and issuers must cover, without cost sharing, qualifying coronavirus preventive
services, regardless of whether such services are delivered by an in-network or
out-of-network provider. This coverage is
required to be provided within 15 business
days after the date the United States Preventive Services Task Force (USPSTF) or
the Advisory Committee on Immunization
Practices of the CDC (ACIP) makes an
applicable recommendation relating to a
qualifying coronavirus preventive service.
***
This IFC provides for flexibilities in
the public notice requirements for a State
Innovation Waiver (also referred to as a
section 1332 waiver) described in section 1332 of PPACA that apply during
the PHE for COVID-19. Specifically, this
IFC gives the Secretary of HHS and the

https://www.cdc.gov/mmwr/volumes/69/wr/mm6915e3.htm.
https://www.cdc.gov/​mmwr/​volumes/​69/​wr/​mm6924e2.htm?​s_​cid=​mm6924e2_​w.
3
https://www.cdc.gov/​coronavirus/​2019-ncov/​cases-updates/​summary.html.
4
Throughout this IFC, unless otherwise specified, “we” and “our” refer to CMS only.
1
2

Bulletin No. 2020–48

1089

November 23, 2020

Secretary of the Treasury the authority to
modify, in part, the public notice procedures to expedite a decision on a proposed
waiver request that is submitted or would
otherwise become due during the PHE
for COVID-19. This IFC also gives these
Secretaries the authority to modify, in
part, the post-award public notice requirements for an approved waiver request that
would otherwise take place or become due
during the PHE for COVID-19.
II. Provisions of the Interim Final Rule
– Department of Health and Human
Services
***
III. Provisions of the Interim Final
Rule – Departments of the Treasury,
Labor and Health and Human Services
A. Rapid Coverage of Preventive
Services for Coronavirus
1. Background
In addition to the steps Congress took
to ensure coverage of COVID-19 diagnostic testing, in section 3203 of the CARES
Act, Congress required group health plans
and health insurance issuers offering
group or individual health insurance coverage to cover, without cost sharing, qualifying coronavirus preventive services.
This coverage is required to be provided
“pursuant to section 2713(a) of the [PHS]
Act,” including its implementing regulations or any successor regulations.
Section 2713 of the PHS Act was added by section 1001 of PPACA and incorporated by reference into ERISA by section 715 of ERISA and into the Code by
section 9815 of the Code. Section 2713
of the PHS

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Airs%3A0be7a42e38fbb847. Public record. Not legal advice.