Bulletin No. 2020–38

HIGHLIGHTS

OF THIS ISSUE





Bulletin No. 2020–38

September 14, 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, EMPLOYMENT TAX

EXEMPT ORGANIZATIONS

Notice 2020-65, page 567.

Announcement 2020-15, page 577.

Notice 2020-65 provides expedited guidance under section

7508A of the Internal Revenue Code to postpone the time for

withholding and paying certain payroll taxes to implement directives from an August 8, 2020 Presidential Memorandum.

Specifically, Notice 2020-65 provides that the due date for

employers to withhold and pay applicable taxes on wages

paid to an employee from September 1, 2020, through December 31, 2020, if the wages are below a certain amount,

is postponed until the period beginning on January 1, 2021,

and ending on April 30, 2021.

EMPLOYEE PLANS

Notice 2020-68, page 567.

This notice provides information regarding certain provisions

of the Setting Every Community Up for Retirement Enhancement Act of 2019, and the Bipartisan American Miners Act

of 2019.

Rev. Proc. 2020-40, page 575.

This revenue procedure amends section 15.05 of Rev. Proc.

2016-37 and section 12.02 of Rev. Proc. 2019-39 to provide

that a discretionary amendment made to a qualified pre-approved plan or 403(b) pre-approved plan is timely adopted if

it is adopted by the deadline set forth in a statutory provision

or guidance that is earlier or later than the general deadline

applicable to discretionary amendments.

Finding Lists begin on page ii.

Revocation of IRC 501(c)(3) Organizations for failure to meet

the code section requirements. Contributions made to the

organizations by individual donors are no longer deductible

under IRC 170(b)(1)(A).

Announcement 2020-16, page 578.

Serves notice to potential donors of a stipulated decision by

the United States Tax Court in declaratory judgment proceedings under Section 7428.

INCOME TAX

T.D. 9907, page 559.

This Treasury Decision adopts, with clarifying changes,

proposed regulations under sections 162, 164, and

170 of the Internal Revenue Code. First, this Treasury

Decision updates the regulations under section 162 to

reflect current law regarding the application of section

162 to a taxpayer that makes a payment or transfer to

an entity described in section 170(c) for a business purpose. Second, this Treasury Decision amends the regulations under section 162 to provide safe harbors with

respect to the treatment of payments made by business entities to an entity described in section 170(c).

Third, this Treasury Decision amends the regulations

under section 164 to provide a safe harbor for payments made to an entity described in section 170(c)

by individuals who itemize deductions and receive or

expect to receive a state or local tax credit in return.

Fourth, this Treasury Decision amends the regulations

under section 170 to reflect past guidance and case

law regarding the application of the quid pro quo principle under section 170 to benefits received or expected

to be received by a donor from a third party.

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

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of the tax laws, including all rulings that supersede, revoke,

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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

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identifying details and information of a confidential nature are

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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

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court decisions, rulings, and procedures must be considered,

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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.

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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.

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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

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by the Department of the Treasury’s Office of the Assistant

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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.

September 14, 2020 

Bulletin No. 2020–38

Part I

26 CFR 1.162-15 Contributions, dues, etc.; 1.164-3

Definitions and special rules; 1.170A-1 Charitable,

etc., contributions and gifts; allowance of deduction;

1.170A-13

T.D. 9907

DEPARTMENT OF THE

TREASURY

Internal Revenue Service

26 CFR Part 1

Treatment of Payments

to Charitable Entities in

Return for Consideration

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document contains final

regulations under sections 162, 164, and

170 of the Internal Revenue Code (Code).

First, the final regulations update the regulations under section 162 to reflect current

law regarding the application of section

162 to taxpayers that make payments or

transfers for business purposes to entities

described in section 170(c). Second, the

final regulations provide safe harbors under section 162 to provide certainty with

respect to the treatment of payments made

by business entities to entities described in

section 170(c). Third, the final regulations

provide a safe harbor under section 164 for

payments made to an entity described in

section 170(c) by individuals who itemize

deductions and receive or expect to receive

a state or local tax credit in return. Fourth,

the final regulations update the regulations

under section 170 to reflect past guidance

and case law regarding the application of

the quid pro quo principle under section

170 to a donor who receives or expects to

receive benefits from a third party. These

regulations affect taxpayers who make

transfers to entities described in section

170(c) for business purposes, and taxpayers who receive state or local tax credits in

exchange for transfers to such entities or

who receive other third-party benefits in

exchange for transfers to such entities.

Bulletin No. 2020–38

DATES: Effective date: These regulations

are effective August 11, 2020.

Applicability dates: For dates of applicability, see §§1.162-15(a)(4), 1.164-3(j)(7),

and 1.170A-1(h)(4)(iii).

FOR FURTHER INFORMATION CONTACT: Sarah Daya or Stephen Rothandler

at (202) 317-4059 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

Section 170(a)(1) generally allows

an itemized deduction for any “charitable contribution” paid within the taxable

year. Section 170(c) defines “charitable

contribution” as a “contribution or gift

to or for the use of” any entity described

in that section. Under section 170(c)(1),

such an entity includes a State, a possession of the United States, or any political subdivision of the foregoing, or the

District of Columbia. Entities described

in section 170(c)(2) include certain corporations, trusts, or community chests,

funds, or foundations, organized and

operated exclusively for religious, charitable, scientific, literary, or educational

purposes, or to foster national or international amateur sports competition, or for

the prevention of cruelty to children or

animals. Section 1.170A-1(c)(5) of the

Income Tax Regulations provides that

transfers of property to an organization

described in section 170(c) that bear a

direct relationship to the taxpayer’s trade

or business and that are made with a reasonable expectation of financial return

commensurate with the amount of the

transfer may constitute allowable deductions as trade or business expenses rather

than as charitable contributions.

Section 162(a) allows a deduction for

all the ordinary and necessary expenses

paid or incurred during the taxable year in

carrying on any trade or business. Section

162(b) provides that no deduction shall be

allowed under section 162(a) for any contribution or gift that would be allowable as

a deduction under section 170 were it not

for the percentage limitations, the dollar

559

limitations, or the requirements as to the

time of payment set forth in that section.

Section 1.162-15(a) applies to contributions to entities described in section

170(c). Prior to amendment by this final

regulation, §1.162-15(a)(1) provided that

no deduction is allowable under section

162(a) for a contribution or gift by an

individual or a corporation if any part

thereof is deductible under section 170.

For example, if a taxpayer makes a contribution of $5,000 and only $4,000 of this

amount is deductible under section 170(a)

(whether because of the percentage limitation under either section 170(b)(1) or (2),

the requirement as to time of payment, or

both), no deduction is allowable under

section 162(a) for the remaining $1,000.

Section 1.162-15(a)(2) clarified that the

limitations provided in section 162(b) and

§1.162-15(a)(1) applied only to payments

that are in fact contributions or gifts to organizations described in section 170. For

example, payments by a transit company

to a local hospital (which is a charitable

organization within the meaning of section 170) in consideration of a binding

obligation on the part of the hospital to

provide hospital services and facilities

for the company’s employees are not contributions or gifts within the meaning of

section 170 and may be deductible under

section 162(a) if the requirements of section 162(a) are otherwise satisfied.

Section 164(a) allows a deduction for

the payment of certain taxes, including:

(1) state and local, and foreign, real property taxes; (2) state and local personal

property taxes; and (3) state and local, and

foreign, income, war profits, and excess

profits taxes. In addition, section 164 allows a deduction for taxes not described

in the preceding sentence that are paid or

accrued within the taxable year in carrying on a trade or business or an activity

described in section 212. Moreover, under

section 164(b)(5), taxpayers may elect to

deduct state and local general sales taxes

in lieu of state and local income taxes.

Section 164(b)(6), as added by section 11042(a) of Public Law No. 115-97,

commonly referred to as the Tax Cuts and

Jobs Act (TCJA), 131 Stat. 2054, 2085

(2017), provides, in the case of an individual, that deductions for foreign real

September 14, 2020

property taxes are not allowable under

section 164(a)(1), and that the deduction

for the aggregate amount of the following

state and local taxes paid during the calendar year is limited to $10,000 ($5,000

in the case of a married individual filing

a separate return): (1) real property taxes;

(2) personal property taxes; (3) income,

war profits, and excess profits taxes; and

(4) general sales taxes. This limitation

applies to taxable years beginning after

December 31, 2017, and before January 1,

2026, and does not apply to foreign taxes

described in section 164(a)(3) or to any

taxes described in section 164(a)(1) and

(2) that are paid or accrued in carrying on

a trade or business or an activity described

in section 212. In response to the limitation in section 164(b)(6), some taxpayers

have considered tax planning strategies to

avoid or mitigate its effects. Some of these

strategies rely on state and local tax credit programs under which states provide

tax credits in return for contributions by

taxpayers to entities described in section

170(c), and some state and local governments have created new programs intended to facilitate use of these strategies.

On June 11, 2018, the Department of

the Treasury (Treasury Department) and

the IRS announced their intention to propose regulations addressing the proper

application of sections 164 and 170 to

taxpayers who make contributions under state and local tax credit programs to

entities described in section 170(c). See

Notice 2018-54, 2018-24 I.R.B. 750. On

August 27, 2018, proposed regulations

(REG-112176-18) under sections 170

and 642(c) were published in the Federal

Register (83 FR 43563) (2018 proposed

regulations). The 2018 proposed regulations proposed amending §1.170A-1(h)

(3) to provide, in general, that if a taxpayer makes a payment or transfers property

to or for the use of an entity described in

section 170(c), and the taxpayer receives

or expects to receive a state or local

tax credit in return for such payment or

transfer, the tax credit constitutes a return

benefit to the taxpayer and reduces the

taxpayer’s charitable contribution deduction. The 2018 proposed regulations also

proposed amending regulations under

section 642(c) to provide a similar rule

for payments made by a trust or decedent’s estate.

September 14, 2020

In response to the 2018 proposed regulations, commenters raised concerns regarding the treatment of business entity

payments to entities described in section

170(c). The Treasury Department and the

IRS considered these concerns and issued Rev. Proc. 2019-12, 2019-04 I.R.B.

401, on December 28, 2018, providing

a safe harbor under section 162 for payments made by a C corporation or specified passthrough entity to or for the use

of an organization described in section

170(c) if the C corporation or specified

passthrough entity receives or expects

to receive state or local tax credits in return. Commenters also raised a concern

regarding the treatment of payments by

individuals who itemize deductions for

Federal income tax purposes and who

have total state and local tax liabilities

that are less than or equal to the section

164(b)(6) limitation. The Treasury Department and the IRS addressed this concern by issuing Notice 2019-12, 2019-27

I.R.B. 57, on June 11, 2019, providing a

safe harbor under section 164 for individuals who make payments to section

170(c) entities in return for state or local

tax credits.

On June 13, 2019, the Treasury Department and the IRS published final regulations in the Federal Register (T.D. 9864,

84 FR 27513) (2019 final regulations) addressing the proper application of sections

164 and 170 to taxpayers who make contributions under state and local tax credit

programs to entities described in section

170(c). The 2019 final regulations provided the general rule that, if a taxpayer

makes a payment or transfers property

to or for the use of an entity described in

section 170(c), and the taxpayer receives

or expects to receive a state or local tax

credit in return for such transfer, the tax

credit constitutes a return benefit to the

taxpayer, or quid pro quo, reducing the

taxpayer’s charitable contribution deduction. See §1.170A-1(h)(3). The 2019 final regulations also amended regulations

under section 642(c) to provide a similar

rule for payments made by a trust or decedent’s estate.

On December 17, 2019, the Treasury

Department and the IRS issued proposed

regulations under sections 162, 164, and

170 (REG-107431-19, 84 FR 68833) to

include the safe harbors provided under

560

Rev. Proc. 2019-12 and Notice 2019-12,

to update regulations under section 162

to reflect current law regarding the application of section 162 to a taxpayer that

makes a payment or transfer to an entity

described in section 170(c) for a business

purpose, and to clarify the application of

the quid pro quo principle under section

170 to benefits received or expected to be

received from third parties.

The Treasury Department and the IRS

received over 40 comments responding to

the proposed regulations and five requests

to speak at the public hearing, which was

held on February 20, 2020. Copies of

written comments received and the list of

speakers at the public hearing are available for public inspection at www.regulations.gov or upon request.

Explanation of Provisions and

Summary of Comments

Explanation of Provisions

The Treasury Department and the IRS

adopt the proposed regulations with clarifications in response to the written comments received and testimony provided. First, the final regulations retain the

proposed amendments to §1.162-15(a).

The final regulations continue to clarify

that a taxpayer’s payment or transfer to

a section 170(c) entity may constitute an

allowable deduction as a trade or business expense under section 162, rather

than a charitable contribution under section 170. The final regulations also retain

the examples demonstrating the application of this rule with minor clarifying

­changes.

Second, the final regulations retain the

safe harbors under section 162 to provide

certainty with respect to the treatment of

payments made by business entities to an

entity described in section 170(c). The

final regulations provide safe harbors under section 162 for payments made by a

business entity that is a C corporation or

specified passthrough entity to or for the

use of an organization described in section

170(c) if the C corporation or specified

passthrough entity receives or expects to

receive state or local tax credits in return.

To the extent that a C corporation or specified passthrough entity receives or expects

to receive a state or local tax credit in re-

Bulletin No. 2020–38

turn for a payment to an organization described in section 170(c), it is reasonable

to conclude that there is a direct benefit and

a reasonable expectation of commensurate

financial return to the C corporation’s or

specified passthrough entity’s business in

the form of a reduction in the state or local

taxes that the entity would otherwise be

required to pay. Thus, the final regulations

provide safe harbors that allow a C corporation or specified passthrough entity

engaged in a trade or business to treat the

portion of the payment that is equal to the

amount of the credit received or expected to be received as meeting the requirements of an ordinary and necessary business expense under section 162. The safe

harbors for C corporations and specified

passthrough entities apply only to payments of cash and cash equivalents. The

safe harbor for specified passthrough entities does not apply if the credit received or

expected to be received reduces a state or

local income tax.

Third, the final regulations retain the

safe harbor under section 164 for payments made to an entity described in section 170(c) by individuals who itemize

deductions and receive or expect to receive a state or local tax credit in return.

The final regulations provide that an individual who itemizes deductions and who

makes a payment to a section 170(c) entity

in exchange for a state or local tax credit

may treat as a payment of state or local tax

for purposes of section 164 the portion of

such payment for which a charitable contribution deduction under section 170 is or

will be disallowed under §1.170A-1(h)(3).

This treatment is allowed in the taxable

year in which the payment is made, but

only to the extent that the resulting credit

is applied pursuant to applicable state or

local law to offset the individual’s state or

local tax liability for such taxable year or

the preceding taxable year. Any unused

credit permitted to be carried forward may

be treated as a payment of state or local

tax under section 164 in the taxable year

or years for which the carryover credit is

applied in accordance with state or local

law. The safe harbor for individuals applies only to payments of cash and cash

equivalents.

The final regulations are not intended

to permit a taxpayer to avoid the limitation of section 164(b)(6). Therefore, the

Bulletin No. 2020–38

final regulations provide that any payment

treated as a state or local tax under section

164, pursuant to the safe harbor provided in §1.164-3(j) of the final regulations,

is subject to the limitation on deductions

in section 164(b)(6). Furthermore, the final regulations are not intended to permit

deductions of the same payments under

more than one provision. Thus, the final

regulations provide that an individual

who relies on the safe harbor in §1.1643(j) to deduct qualifying payments under

section 164 may not also deduct the same

payments under any other section of the

Code.

Lastly, the final regulations retain the

amendments to the regulations under section 170 to reflect past guidance and case

law regarding the application of the quid

pro quo principle under section 170 to a

donor who receives or expects to receive

benefits from a third party. The final regulations clarify that the quid pro quo principle applies regardless of whether the

party providing the quid pro quo is the

donee or a third party. To reflect existing

law, the final regulations amend the rules

in §1.170A-1(h) that address a donor’s

payments in exchange for consideration.

Specifically, the final regulations revise

§1.170A-1(h)(4) to provide definitions

of “in consideration for” and “goods and

services” for purposes of applying the

rules in §1.170A-1(h). Under the final

regulations, a taxpayer will be treated as

receiving goods and services in consideration for a taxpayer’s payment or transfer

to an entity described in section 170(c) if,

at the time the taxpayer makes the payment or transfer, the taxpayer receives or

expects to receive goods or services in

return.

For additional clarity, the final

regulations amend the language in

§1.170A-1(h)(2)(i)(B) to state that the

fair market value of goods and services

includes the value of goods and services

provided by parties other than the donee.

Also, the final regulations add a definition of “goods and services” that is the

same as the definition in §1.170A-13(f)

(5). Finally, the final regulations revise

the cross-references defining “in consideration for” and “goods and services”

in §1.170A-1(h)(1) and (h)(3)(iii) to be

consistent with the definitions provided

in paragraph §1.170A-1(h)(4).

561

Summary of Comments

1. General Comments

As discussed previously in this preamble, the Treasury Department and the IRS

received over 40 comments responding to

the proposed regulations and five requests

to speak at the public hearing. Approximately half of the commenters expressed

support for the proposed regulations and

recommended that the Treasury Department and the IRS finalize the proposed

regulations. Many of these commenters

expressed support for the clarification of

the regulations under section 162 regarding business payments to section 170(c)

entities and the incorporation of safe harbors previously provided in Rev. Proc.

2019-12 and Notice 2019-12. However,

some of these commenters expressed concerns about the impact of the 2019 final

regulations on state and local programs

granting tax credits for contributions by

individuals and businesses to scholarship

granting organizations (SGOs). SGOs are

entities described in section 170(c) that receive contributions from individuals and

businesses and then disburse these funds

as scholarships to enable eligible students

to attend qualified private schools. Additional commenters were concerned that,

even with the clarifications in the proposed regulations, the 2019 final regulations have resulted in and will continue to

result in decreased contributions to SGOs

and other section 170(c) entities.

2. Payments by Business Entities in

Exchange for State or Local Tax Credits

Multiple commenters expressed concern that passthrough entity owners may

circumvent the section 164(b)(6) limitation by recharacterizing the portion of the

payment that is not deductible under section 170 as a business expense deductible under section 162. One commenter

requested clarification regarding whether

a business entity may deduct payments to

SGOs under section 162 as ordinary and

necessary business expenses incurred in

carrying on a trade or business. A few

commenters expressed concern that the

regulations may incentivize payments

to education programs that discriminate

against students with disabilities or that

September 14, 2020

divert tax dollars from public schools to

private schools. One commenter opined

that state and local programs providing tax credits to businesses that donate

to certain charitable organizations run

counter to the concept of charity because

donors should expect nothing in return

for a donation.

Several commenters suggested revising Example 2 in §1.162-15(a)(2)(ii) to

clarify that individuals are not allowed to

generate partnership tax deductions under

section 162 in addition to state or local tax

credits that flow through to partners. Some

commenters asserted that Example 2 is inconsistent with the safe harbor provided

for passthrough entities in §1.162-15(a)

(3), which expressly excludes situations

in which passthrough entities receive state

or local income tax credits. A commenter

suggested including a general rule stating

that in any case where a state or local tax

credit has the effect of reducing an otherwise nondeductible state or local tax liability, the payment giving rise to the state

or local tax credit cannot itself be deductible.

While the Treasury Department and the

IRS acknowledge these concerns, the regulations retain the clarifications to §1.16215(a)(1) and (a)(2) regarding section 162

deductions for business payments to section 170(c) entities, as well as examples

illustrating the rule. Section 1.162-15(a)

(1) mirrors the language of §1.170A-1(c)

(5), which has been in effect since 1970.

Section 1.170A-1(c)(5) provided that if

the taxpayer’s payment or transfer bears a

direct relationship to its trade or business,

and the payment is made with a reasonable

expectation of commensurate financial

return, the payment or transfer may constitute an allowable deduction as a trade

or business expense under section 162,

rather than a charitable contribution under

section 170. See also Marquis v. Commissioner, 49 T.C. 695 (1968). Section

1.162-15(a)(1) applies the same standard.

Thus, a passthrough entity may deduct a

payment under §1.162-15(a)(1) only if the

entity can demonstrate that the payment

satisfies these requirements, which limits

the possibility of abuse.

Moreover, the revisions to §1.16215(a)(1) are not inconsistent with the safe

harbor provided for passthrough entities

under §1.162-15(a)(3), which expressly

September 14, 2020

excludes situations in which passthrough

entities receive state or local income tax

credits. The scope of §1.162-15(a)(3) is

more limited because it provides safe harbor relief for taxpayers that receive a state

or local tax credit in return for a payment

to charity, rather than an application of the

law. As a safe harbor, this section sets forth

a simplified analysis of a passthrough entity’s expenditure—requiring merely the

receipt or expectation of receipt of a state

or local business tax credit. In contrast,

§1.162-15(a)(1) reiterates the current law,

which requires more than the receipt of a

credit against a business-related tax. Section 1.162-15(a)(1) requires a direct business relationship to the trade or business

and a reasonable expectation of commensurate financial return. If a passthrough

entity meets these requirements, then the

payment or transfer to the section 170(c)

entity may be properly treated as a business expense under section 162.

Another commenter also expressed

concern that the examples under §1.16215(a)(2) create confusion about deductions for institutional or “good will” advertising under §1.162-20(a)(2) because both

examples contain facts that could describe

advertising addressed in §1.162-20(a)(2).

The commenter suggested that the examples be moved from §1.162-15(a)(2)

to §1.162-20(a)(2). In addition, the commenter suggested that the Treasury Department and the IRS revise the examples

to clarify the relationship between §1.16215(a)(2) and §1.162-20(a)(2) and address

the requirement under §1.162-20(a)(2)

that deductible institutional and good will

advertising expenditures must relate to

patronage that the taxpayer might reasonably expect in the future. This commenter

also requested that the cross-reference to

§1.162-20 in §1.162-15(d) of the existing

regulations be modified to provide additional explanation.

The Treasury Department and the IRS

considered these comments but have determined that changes to §1.162-15(a)

(1) and (2) to clarify the distinctions between §1.162-15 and §1.162-20 are beyond the scope of these final regulations.

Section 1.162-20(a)(2) provides rules for

deducting expenditures for institutional or

good will advertising that keeps the taxpayer’s name before the public, including by encouraging actions or presenting

562

views on various subjects. For example,

§1.162-20(a)(2) refers to the costs of advertising that encourages contributions to

organizations such as the Red Cross, encourages the purchase of savings bonds,

encourages participation in similar causes,

or presents views on subjects of a general

nature.

In contrast, §1.162-15(a) addresses

only payments made to entities described

in section 170(c). Section 1.162-15(a)(1)

provides that payments to section 170(c)

entities may be deducted under section

162 if they bear a direct relationship to the

taxpayer’s trade or business and are made

with a reasonable expectation of financial

return commensurate with the amount

paid. The examples in §1.162-15(a)(2)

of the final regulations are not intended

to demonstrate the application of §1.16220(a)(2), which serves a different purpose.

The final regulations revise Example 1

under §1.162-15(a)(2)(i) to refer to “supporters,” rather than “sponsors,” to avoid

any potential confusion with the rules

governing qualified sponsorship payments

under section 513. In addition, the final

regulations revise the cross-reference in

§1.162-15(d) to specify that the deductibility of expenditures for institutional

and good will advertising is addressed in

§1.162-20(a)(2).

3. Quid Pro Quo Provided by a Third

Party

Some commenters expressed a belief

that under current law a quid pro quo

received or expected to be received by a

taxpayer does not reduce the taxpayer’s

charitable contribution deduction if the

quid pro quo comes from a party that is

not the donee. The commenters emphasized that the use of state or local tax credits in exchange for donations to SGOs is

not intended to subvert federal tax law.

These commenters concluded that a tax

credit from a state or local government

should not reduce the charitable contribution deduction for a payment to a section

170(c)(2) entity. The commenters suggested that the quid pro quo principle should

be applied only to contributions to entities

described in section 170(c)(1). One commenter recommended that if a contribution is made to section 170(c)(2) entities

in exchange for a state or local tax credit,

Bulletin No. 2020–38

the credit should be treated as income to

the donor.

The Treasury Department and the IRS

considered these comments, but did not

adopt the suggested changes because the

established tax law does not support them.

As discussed in the preamble to the proposed regulations, both the courts and the

IRS have concluded that the quid pro quo

principle is equally applicable, regardless

of whether the donor expects to receive

the benefit from the donee or from a third

party. See, e.g., Singer v. United States,

449 F.2d 413 (Ct. Cl. 1971) (rejecting the

taxpayer’s argument that an expected benefit should be ignored because it would be

received from a third party); Rev. Rul. 67246, 1967-2 C.B. 104 (concluding that the

donor’s charitable contribution deduction

must be reduced by the value of a transistor radio provided by a local store).

Moreover, the courts have concluded that

a taxpayer’s expectation of a substantial

benefit in return, from any source, reflects

a lack of requisite charitable intent on the

part of the donor. See, e.g., Ottawa Silica

Co. v. United States, 699 F.2d 1124 (Fed.

Cir. 1983) (denying a charitable contribution deduction for the value of land donated for the construction of a school, where

the taxpayer had reason to believe such

construction would ultimately increase the

value of its land). Thus, the source of the

consideration is immaterial in determining

whether a donor has received or expects

to receive a return benefit that reduces its

charitable contribution deduction.

4. Concerns About Reduced Charitable

Giving

Several commenters expressed concerns about the impact of the regulations

on donations to SGOs and other section

170(c)(2) entities that provide education

opportunities for impoverished and special needs children in grades K-12. These

commenters expressed concern that the

2019 final regulations have resulted in a

decrease in donations to SGOs. Several

commenters noted that these organizations improve the lives of students and

criticized the proposed regulations as

undermining the policy goals of school

choice.

Some commenters stated that individual taxpayers should be able to claim a

Bulletin No. 2020–38

charitable contribution deduction for all

payments made pursuant to a charitable

state tax credit program. Other commenters suggested exempting payments and

transfers to charitable entities if the payments and transfers are made pursuant to

tax credit programs that were established

before the enactment of the TCJA. Many

commenters suggested providing an exception for state or local tax credits provided in exchange for payments to only

non-governmental entities described under section 170(c). A few commenters

suggested revoking the 2019 final regulations or developing a more narrowly targeted approach.

As noted in the preamble to the 2019

final regulations, the Treasury Department

and the IRS recognize the importance of

the federal charitable contribution deduction, as well as state and local tax credit

programs, in encouraging charitable giving. However, the concerns expressed by

these commenters relate more directly to

the 2019 final regulations, and the statutory limitation on individuals’ deductions

of state and local taxes under section 164,

than to the amendments that are the subject of this rulemaking. The 2019 final

regulations continue to allow a charitable

contribution deduction for the portion of a

taxpayer’s contribution that is a gratuitous

transfer, and do not affect the ability of

states or localities to provide state or local

tax incentives. In addition, the final regulations provide additional clarity to businesses that make payments or transfers to

or for the use of SGOs and other entities

described in section 170(c). Similarly, the

safe harbor provided under §1.164-3(j) of

the final regulations for individuals who

itemize deductions will ensure equitable

treatment for taxpayers whose deductions

for state and local tax payments would not

have exceeded the section 164(b)(6) limitation.

In addition, for the reasons cited in the

preamble to the 2019 final regulations,

those regulations do not distinguish between taxpayers who make payments or

transfers to state and local tax credit programs established after enactment of the

TCJA and those who make payments or

transfers to credit programs established

prior to the enactment of the TCJA. Similarly, these final regulations apply the

quid pro quo principle under section 170

563

equally to all state and local tax credit programs, and the final regulations do

not adopt commenter recommendations to

create exceptions for various types of state

tax credit programs.

Applicability Dates

The amendments to §1.162-15 apply

to payments or transfers made on or after

December 17, 2019. However, taxpayers

may choose to apply the amendments to

payments or transfers made on or after

January 1, 2018.

Section 1.164-3(j) applies to payments

made to section 170(c) entities on or after

June 11, 2019. However, taxpayers may

choose to apply paragraph (j) to payments

made to section 170(c) entities after August 27, 2018.

The definitions provided in §1.170A1(h)(4) are applicable to amounts paid or

property transferred on or after December

17, 2019.

Special Analyses

Executive Orders 13563 and 12866

direct agencies to assess costs and benefits of available regulatory alternatives

and, if regulation is necessary, to select

regulatory approaches that maximize net

benefits (including potential economic,

environmental, public health and safety

effects, distributive impacts, and equity).

Executive Order 13563 emphasizes the

importance of quantifying both costs and

benefits, of reducing costs, of harmonizing rules, and of promoting flexibility.

The Administrator of the Office of Information and Regulatory Affairs (OIRA),

Office of Management and Budget, has

waived review of this rule in accordance

with section 6(a)(3)(A) of Executive Order 12866.

Pursuant to the Regulatory Flexibility

Act (5 U.S.C. chapter 6), it is hereby certified that this rule will not have a significant

economic impact on a substantial number

of small entities. Although data are not

readily available for the IRS and the Treasury Department to assess the number of

small entities that are likely to be directly

affected by the regulations, the economic

impact is unlikely to be significant.

As discussed elsewhere in this preamble, the rule largely updates the reg-

September 14, 2020

ulations to reflect existing law and policy. The amendments update the section

162 and section 170 regulations to reflect

current law. In addition, the amendments

add to the regulations safe harbors under

section 162 and section 164, regarding

deductions when payments are made to

entities described in section 170(c) and

the donor receives or expects to receive

a state or local tax credit in return; these

safe harbors were provided previously

in Internal Revenue Bulletin guidance.

These regulations are expected to provide some additional certainty to taxpayers but are not expected to result in any

noticeable change in taxpayer behavior.

The increased certainty, and in particular the provision of safe harbors, is expected to reduce compliance burdens.

Accordingly, the Treasury Department

and the IRS certify that the rule will not

have a significant economic impact on a

substantial number of small entities. Pursuant to section 7805(f) of the Code, the

notice of proposed rulemaking preceding this regulation was submitted to the

Chief Counsel for Advocacy of the Small

Business Administration for comment on

its impact on small business, and no comments were received.

Statement of Availability of IRS

Documents

IRS Revenue Procedures, Revenue

Rulings, Notices, 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

http://www.irs.gov.

Drafting Information

The principal author of these regulations is the Office of the Associate Chief

Counsel (Income Tax and Accounting).

However, other personnel from the IRS

and the Treasury Department participated

in their development.

List of Subjects in 26 CFR Part 1

Income taxes, Reporting and recordkeeping requirements.

September 14, 2020

Adoption of 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 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * *

Par. 2. Section 1.162-15 is amended by

revising paragraphs (a) and (d) to read as

follows:

§1.162-15 Contributions, dues, etc.

(a) Payments and transfers to entities

described in section 170(c)—(1) In general. A payment or transfer to or for the use

of an entity described in section 170(c)

that bears a direct relationship to the taxpayer’s trade or business and that is made

with a reasonable expectation of financial

return commensurate with the amount

of the payment or transfer may constitute an allowable deduction as a trade or

business expense rather than a charitable

contribution deduction under section 170.

For payments or transfers in excess of the

amount deductible under section 162(a),

see §1.170A-1(h).

(2) Examples. The following examples

illustrate the rules of paragraph (a)(1) of

this section:

(i) Example 1. A, an individual, is a sole proprietor who manufactures musical instruments and sells

them through a website. A makes a $1,000 payment

to a local church (which is a charitable organization

described in section 170(c)) for a half-page advertisement in the church’s program for a concert. In the

program, the church thanks its concert supporters,

including A. A’s advertisement includes the URL for

the website through which A sells its instruments. A

reasonably expects that the advertisement will attract

new customers to A’s website and will help A to sell

more musical instruments. A may treat the $1,000

payment as an expense of carrying on a trade or business under section 162.

(ii) Example 2. P, a partnership, operates a chain

of supermarkets, some of which are located in State

N. P operates a promotional program in which it sets

aside the proceeds from one percent of its sales each

year, which it pays to one or more charities described

in section 170(c). The funds are earmarked for use in

projects that improve conditions in State N. P makes

the final determination on which charities receive

payments. P advertises the program. P reasonably

believes the program will generate a significant degree of name recognition and goodwill in the communities where it operates and thereby increase its

564

revenue. As part of the program, P makes a $1,000

payment to a charity described in section 170(c). P

may treat the $1,000 payment as an expense of carrying on a trade or business under section 162. This

result is unchanged if, under State N’s tax credit

program, P expects to receive a $1,000 income tax

credit on account of P’s payment, and under State N

law, the credit can be passed through to P’s partners.

(3) Safe harbors for C corporations

and specified passthrough entities making

payments in exchange for state or local tax

credits—(i) Safe harbor for C corporations. If a C corporation makes a payment

to or for the use of an entity described in

section 170(c) and receives or expects to

receive in return a state or local tax credit

that reduces a state or local tax imposed

on the C corporation, the C corporation

may treat such payment as meeting the requirements of an ordinary and necessary

business expense for purposes of section

162(a) to the extent of the amount of the

credit received or expected to be received.

(ii) Safe harbor for specified

passthrough entities—(A) Definition of

specified passthrough entity. For purposes

of this paragraph (a)(3)(ii), an entity is a

specified passthrough entity if each of the

following requirements is satisfied—

(1) The entity is a business entity other

than a C corporation and is regarded for

all Federal income tax purposes as separate from its owners under §301.7701-3 of

this chapter;

(2) The entity operates a trade or business within the meaning of section 162;

(3) The entity is subject to a state or

local tax incurred in carrying on its trade

or business that is imposed directly on the

entity; and

(4) In return for a payment to an entity described in section 170(c), the entity

described in paragraph (a)(3)(ii)(A)(1) of

this section receives or expects to receive

a state or local tax credit that the entity applies or expects to apply to offset a state or

local tax described in paragraph (a)(3)(ii)

(A)(3) of this section.

(B) Safe harbor. Except as provided

in paragraph (a)(3)(ii)(C) of this section,

if a specified passthrough entity makes

a payment to or for the use of an entity

described in section 170(c), and receives

or expects to receive in return a state or

local tax credit that reduces a state or local

tax described in paragraph (a)(3)(ii)(A)(3)

of this section, the specified passthrough

entity may treat such payment as an ordi-

Bulletin No. 2020–38

nary and necessary business expense for

purposes of section 162(a) to the extent of

the amount of credit received or expected

to be received.

(C) Exception. The safe harbor described in this paragraph (a)(3)(ii) does

not apply if the credit received or expected to be received reduces a state or local

income tax.

(iii) Definition of payment. For purposes of this paragraph (a)(3), payment

is defined as a payment of cash or cash

equivalent.

(iv) Examples. The following examples

illustrate the rules of paragraph (a)(3) of

this section.

(A) Example 1. C corporation that receives or

expects to receive dollar-for-dollar state or local

tax credit. A, a C corporation engaged in a trade or

business, makes a payment of $1,000 to an entity

described in section 170(c). In return for the payment, A expects to receive a dollar-for-dollar state

tax credit to be applied to A’s state corporate income

tax liability. Under paragraph (a)(3)(i) of this section,

A may treat the $1,000 payment as an expense of carrying on a trade or business under section 162.

(B) Example 2. C corporation that receives or

expects to receive percentage-based state or local

tax credit. B, a C corporation engaged in a trade or

business, makes a payment of $1,000 to an entity

described in section 170(c). In return for the payment, B expects to receive a local tax credit equal

to 80 percent of the amount of this payment ($800)

to be applied to B’s local real property tax liability. Under paragraph (a)(3)(i) of this section, B may

treat $800 as an expense of carrying on a trade or

business under section 162. The treatment of the

remaining $200 will depend upon the facts and circumstances and is not affected by paragraph (a)(3)

(i) of this section.

(C) Example 3. Partnership that receives or expects to receive dollar-for-dollar state or local tax

credit. P is a limited liability company classified as

a partnership for Federal income tax purposes under

§301.7701-3 of this chapter. P is engaged in a trade

or business and makes a payment of $1,000 to an entity described in section 170(c). In return for the payment, P expects to receive a dollar-for-dollar state

tax credit to be applied to P’s state excise tax liability

incurred by P in carrying on its trade or business.

Under applicable state law, the state’s excise tax is

imposed at the entity level (not the owner level). Under paragraph (a)(3)(ii) of this section, P may treat

the $1,000 as an expense of carrying on a trade or

business under section 162.

(D) Example 4. S corporation that receives or

expects to receive percentage-based state or local

tax credit. S is an S corporation engaged in a trade

or business and is owned by individuals C and D. S

makes a payment of $1,000 to an entity described in

section 170(c). In return for the payment, S expects

to receive a local tax credit equal to 80 percent of

the amount of this payment ($800) to be applied to

S’s local real property tax liability incurred by S in

carrying on its trade or business. Under applicable

Bulletin No. 2020–38

local law, the real property tax is imposed at the entity level (not the owner level). Under paragraph (a)(3)

(ii) of this section, S may treat $800 of the payment

as an expense of carrying on a trade or business under section 162. The treatment of the remaining $200

will depend upon the facts and circumstances and is

not affected by paragraph (a)(3)(ii) of this section.

(v) Applicability of section 170 to payments in exchange for state or local tax

benefits. For rules regarding the availability of a charitable contribution deduction

under section 170 where a taxpayer makes

a payment or transfers property to or for

the use of an entity described in section

170(c) and receives or expects to receive a

state or local tax benefit in return for such

payment, see §1.170A-1(h)(3).

(4) Applicability dates. Paragraphs (a)

(1) and (2) of this section, regarding the

application of section 162 to taxpayers

making payments or transfers to entities

described in section 170(c), apply to payments or transfers made on or after December 17, 2019. Section 1.162-15(a), as

it appeared in the April 1, 2020 edition of

26 CFR part 1, generally applies to payments or transfers made prior to December 17, 2019. However, taxpayers may

choose to apply paragraphs (a)(1) and (2)

of this section to payments and transfers

made on or after January 1, 2018. Paragraph (a)(3) of this section, regarding the

safe harbors for C corporations and specified passthrough entities making payments

to section 170(c) entities in exchange for

state or local tax credits, applies to payments made by these entities on or after

December 17, 2019. However, taxpayers

may choose to apply the safe harbors of

paragraph (a)(3) to payments made on or

after January 1, 2018.

*****

(d) Cross reference. – For provisions

dealing with expenditures for institutional

or “good will” advertising, see §1.16220(a)(2).

Par. 3. Section 1.164-3 is amended by

adding paragraph (j) to read as follows:

§1.164-3 Definitions and special rules.

*****

(j) Safe harbor for payments made by

individuals in exchange for state or local

tax credits--(1) In general. An individual

who itemizes deductions and who makes

a payment to or for the use of an entity described in section 170(c) in consideration

565

for a state or local tax credit may treat as

a payment of state or local tax for purposes of section 164 the portion of such payment for which a charitable contribution

deduction under section 170 is disallowed

under §1.170A-1(h)(3). This treatment as

payment of a state or local tax is allowed

in the taxable year in which the payment is

made to the extent that the resulting credit

is applied, consistent with applicable state

or local law, to offset the individual’s state

or local tax liability for such taxable year

or the preceding taxable year.

(2) Credits carried forward. To the

extent that a state or local tax credit described in paragraph (j)(1) of this section

is not applied to offset the individual’s applicable state or local tax liability for the

taxable year of the payment or the preceding taxable year, any excess state or local

tax credit permitted to be carried forward

may be treated as a payment of state or

local tax under section 164(a) in the taxable year or years for which the carryover

credit is applied in accordance with state

or local law.

(3) Limitation on individual deductions. Nothing in this paragraph (j) may

be construed as permitting a taxpayer who

applies this safe harbor to avoid the limitation of section 164(b)(6) for any amount

paid as a tax or treated under this paragraph (j) as a payment of tax.

(4) No safe harbor for transfers of

property. The safe harbor provided in this

paragraph (j) applies only to a payment of

cash or cash equivalent.

(5) Coordination with other deductions. An individual who deducts a payment under section 164 may not also deduct the same payment under any other

Code section.

(6) Examples. In the following examples, the taxpayer is an individual who

itemizes deductions for Federal income

tax purposes.

(i) Example 1. In year 1, Taxpayer A makes a payment of $500 to an entity described in section 170(c).

In return for the payment, A receives a dollar-for-dollar state income tax credit. Prior to application of the

credit, A’s state income tax liability for year 1 was

more than $500. A applies the $500 credit to A’s year

1 state income tax liability. Under paragraph (j)(1)

of this section, A treats the $500 payment as a payment of state income tax in year 1. To determine A’s

deduction amount, A must apply the provisions of

section 164 applicable to payments of state and local

taxes, including the limitation in section 164(b)(6).

See paragraph (j)(3) of this section.

September 14, 2020

(ii) Example 2. In year 1, Taxpayer B makes a

payment of $7,000 to an entity described in section

170(c). In return for the payment, B receives a dollar-for-dollar state income tax credit, which under

state law may be carried forward for three taxable

years. Prior to application of the credit, B’s state income tax liability for year 1 was $5,000; B applies

$5,000 of the $7,000 credit to B’s year 1 state income

tax liability. Under paragraph (j)(1) of this section,

B treats $5,000 of the $7,000 payment as a payment

of state income tax in year 1. Prior to application of

the remaining credit, B’s state income tax liability for

year 2 exceeds $2,000. B applies the excess credit of

$2,000 to B’s year 2 state income tax liability. For

year 2, under paragraph (j)(2) of this section, B treats

the $2,000 as a payment of state income tax under

section 164. To determine B’s deduction amounts in

years 1 and 2, B must apply the provisions of section

164 applicable to payments of state and local taxes,

including the limitation under section 164(b)(6). See

paragraph (j)(3) of this section.

(iii) Example 3. In year 1, Taxpayer C makes a

payment of $7,000 to an entity described in section

170(c). In return for the payment, C receives a local real property tax credit equal to 25 percent of the

amount of this payment ($1,750). Prior to application of the credit, C’s local real property tax liability in year 1 was more than $1,750. C applies the

$1,750 credit to C’s year 1 local real property tax

liability. Under paragraph (j)(1) of this section, for

year 1, C treats $1,750 of the $7,000 payment as a

payment of local real property tax for purposes of

section 164. To determine C’s deduction amount, C

must apply the provisions of section 164 applicable

to payments of state and local taxes, including the

limitation under section 164(b)(6). See paragraph (j)

(3) of this section.

(7) Applicability date. This paragraph

(j) applies to payments made to section

170(c) entities on or after June 11, 2019.

However, a taxpayer may choose to apply this paragraph (j) to payments made

to section 170(c) entities after August 27,

2018.

Par. 4. Section 1.170A-1 is amended as

follows:

1. Paragraph (c)(5) is revised.

2. In paragraph (h)(1), remove the

cross-references to “§1.170A-13(f)(6)”

and “§1.170A-13(f)(5)” and add in their

places “paragraph (h)(4)(i) of this section”

and “paragraph (h)(4)(ii) of this section”,

respectively.

3. Paragraphs (h)(2)(i)(B) and (h)(3)

(iii) are revised.

September 14, 2020

4. Paragraph (h)(3)(viii) is redesignated as paragraph (h)(3)(x).

5. New paragraph (h)(3)(viii) and paragraph (h)(3)(ix) are added.

6. Paragraphs (h)(4) through (6) are

redesignated as paragraphs (h)(5) through

(7).

7. New paragraph (h)(4) is added.

The revisions and additions read as follows:

§1.170A-1 Charitable, etc., contributions and gifts; allowance of deduction.

*****

(c) * * *

(5) For payments or transfers to an entity described in section 170(c) by a taxpayer carrying on a trade or business, see

§1.162-15(a).

*****

(h) * * *

(2) * * *

(i) * * *

(B) The fair market value of the goods

or services received or expected to be received in return.

*****

(3) * * *

(iii) In consideration for. For purposes

of paragraph (h) of this section, the term

in consideration for has the meaning set

forth in paragraph (h)(4)(i) of this section.

*****

(viii) Safe harbor for payments by C

corporations and specified passthrough entities. For payments by a C corporation or

by a specified passthrough entity to an entity described in section 170(c), where the C

corporation or specified passthrough entity

receives or expects to receive a state or local

tax credit that reduces the charitable contribution deduction for such payments under

paragraph (h)(3) of this section, see §1.16215(a)(3) (providing safe harbors under section 162(a) to the extent of that reduction).

(ix) Safe harbor for individuals. Under

certain circumstances, an individual who

itemizes deductions and makes a payment

to an entity described in section 170(c) in

consideration for a state or local tax credit

566

may treat the portion of such payment for

which a charitable contribution deduction

is disallowed under paragraph (h)(3) of

this section as a payment of state or local

taxes under section 164. See §1.164-3(j),

providing a safe harbor for certain payments by individuals in exchange for state

or local tax credits.

*****

(4) Definitions. For purposes of this

paragraph (h), the following definitions

apply:

(i) In consideration for. A taxpayer receives goods or services in consideration

for a taxpayer’s payment or transfer to an

entity described in section 170(c) if, at the

time the taxpayer makes the payment to

such entity, the taxpayer receives or expects to receive goods or services from

that entity or any other party in return.

(ii) Goods or services. Goods or services means cash, property, services, benefits, and privileges.

(iii) Applicability date. The definitions

provided in this paragraph (h)(4) are applicable to amounts paid or property transferred on or after December 17, 2019.

*****

§1.170A-13 [Amended]

Par. 5. Section 1.170A-13(f)(7) is

amended by removing the cross-reference

to “§1.170A-1(h)(5)” and adding in its

place “§1.170A-1(h)(6).”

Sunita Lough,

Deputy Commissioner for Services

and Enforcement.

Approved: July 27, 2020.

David J. Kautter,

Assistant Secretary of the Treasury

(Tax Policy).

(Filed by the Office of the Federal Register on August 7, 2020, 4:15 p.m., and published in the issue

of the Federal Register for August 11, 2020, 85 F.R.

48467)

Bulletin No. 2020–38

Part III

Relief with Respect to

Employment Tax Deadlines

Applicable to Employers

Affected by the Ongoing

Coronavirus (COVID-19)

Disease 2019 Pandemic

Notice 2020-65

On August 8, 2020, the President of the

United States issued a Presidential Memorandum directing the Secretary of the

Treasury (Secretary) to use his authority

pursuant to section 7508A of the Internal

Revenue Code (Code) to defer the withholding, deposit, and payment of certain

payroll tax obligations.1 Accordingly, the

Secretary has determined that employers that are required to withhold and pay

the employee share of social security tax

under section 3102(a) or the railroad retirement tax equivalent under section

3202(a) are affected by the COVID-19

emergency for purposes of the relief described in the Presidential Memorandum

and this notice (Affected Taxpayers). For

Affected Taxpayers, the due date for the

withholding and payment2 of the tax imposed by section 3101(a), and so much

of the tax imposed by section 3201 as

is attributable to the rate in effect under

section 3101(a), on Applicable Wages, as

defined herein, (collectively Applicable

Taxes) is postponed until the period beginning on January 1, 2021, and ending

on April 30, 2021.

Applicable Wages

For purposes of this notice, Applicable

Wages means wages as defined in section

3121(a) or compensation as defined in

section 3231(e)3 paid to an employee on a

pay date during the period beginning on

September 1, 2020, and ending on De-

cember 31, 2020, but only if the amount

of such wages or compensation paid for

a bi-weekly pay period is less than the

threshold amount of $4,000, or the equivalent threshold amount with respect to

other pay periods. The determination of

Applicable Wages is made on a pay period-by-pay period basis. If the amount of

wages or compensation payable to an employee for a pay period is less than the corresponding pay period threshold amount,

then that amount is considered Applicable

Wages for the pay period, and the relief

provided in this notice applies to those

wages or that compensation paid to that

employee for that pay period, irrespective

of the amount of wages or compensation

paid to the employee for other pay periods.

Payment of Deferred Applicable Taxes

An Affected Taxpayer must withhold

and pay the total Applicable Taxes that the

Affected Taxpayer deferred under this notice ratably from wages and compensation

paid between January 1, 2021 and April

30, 2021 or interest, penalties, and additions to tax will begin to accrue on May

1, 2021, with respect to any unpaid Applicable Taxes. If necessary, the Affected

Taxpayer may make arrangements to otherwise collect the total Applicable Taxes

from the employee.

Drafting Information

The principal authors of this notice are

attorneys of the Office of Associate Chief

Counsel, Employee Benefits, Exempt Organizations, and Employment Taxes, with

the participation of staff from other offices. For further information regarding the

guidance under this notice, please call the

Notice 2020-65 Hotline at (202) 317-5436

(not a toll-free number).

Miscellaneous Changes

Under the Setting Every

Community Up for

Retirement Enhancement

Act of 2019 and the

Bipartisan American Miners

Act of 2019

Notice 2020-68

I. PURPOSE

This notice provides guidance in the

form of questions and answers with respect to certain provisions of Division

O of the Further Consolidated Appropriations Act, 2020, Pub. L. 116-94, 133

Stat. 2534 (2019), known as the Setting

Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act),

and with respect to § 104 of Division M

of the Further Consolidated Appropriations Act, 2020, known as the Bipartisan

American Miners Act of 2019 (Miners

Act). Specifically, this notice addresses

issues under the following sections of the

SECURE Act: § 105 (small employer automatic enrollment credit), § 107 (repeal

of maximum age for traditional IRA contributions), § 112 (participation of longterm, part-time employees in § 401(k)

plans), § 113 (qualified birth or adoption

distributions), and § 116 (permitting excluded difficulty of care payments to be

taken into account as compensation for

purposes of determining certain retirement contribution limitations). This notice also addresses issues under § 104 of

the Miners Act (reduction in minimum

age for in-service distributions) and

provides guidance on deadlines for plan

amendments.

This notice is not intended to provide

comprehensive guidance as to the specific provisions of the SECURE Act and the

The Presidential Memorandum is available at https://www.federalregister.gov/d/2020-17899.

The deposit obligation for employee social security tax does not arise until the tax is withheld. Accordingly, by postponing the time for withholding the employee social security tax, the

deposit obligation is delayed by operation of the regulations. Thus, this notice does not separately postpone the deposit obligation.

3

Because Applicable Wages are defined as wages as defined in section 3121(a) and compensation as defined in section 3231(e), any amounts excluded from wages or compensation under

these sections are not included when determining Applicable Wages.

1

2

Bulletin No. 2020–38

567

September 14, 2020

Miners Act it addresses, but rather is intended to provide guidance on particular

issues to assist in the implementation of

these provisions. The Department of the

Treasury (Treasury Department) and the

Internal Revenue Service (IRS) continue

to analyze the various provisions of the

SECURE Act and the Miners Act and anticipate issuing further guidance, including regulations, as appropriate.

II. PROVISIONS OF THE SECURE

ACT AND THE MINERS ACT

TABLE OF CONTENTS:

A - Section 105 of the SECURE Act

B - Section 107 of the SECURE Act

C - Section 112 of the SECURE Act

D - Section 113 of the SECURE Act

E - Section 116 of the SECURE Act

F - Section 104 of the Miners Act

G - Provisions Relating to Plan Amendments

A. SECTION 105 OF THE SECURE

ACT

Section 105 of the SECURE Act

amends the Internal Revenue Code (Code)

to add new § 45T, which provides a business credit under § 38 of the Code for an

eligible employer that establishes an eligible automatic contribution arrangement

under a qualified employer plan. The credit is equal to $500 for any taxable year of

an eligible employer that occurs during a

credit period. Under § 45T(b)(2), a taxable year is not treated as occurring during

a credit period unless the arrangement is

included in the plan for the taxable year.

Under § 105(d) of the SECURE Act, the

new credit applies to taxable years beginning after December 31, 2019.

Section 45T(c) provides that the term

“eligible employer” has the meaning given that term in § 408(p)(2)(C)(i), which

requires that an employer have had no

more than 100 employees who received

at least $5,000 of compensation from the

employer for the preceding year. Section

B of IRS Notice 98-4, 1998-2 I.R.B. 25,

1998-1 C.B. 269, provides guidance regarding this eligible employer definition,

including rules under which certain related employers (trades or businesses under

common control) are treated as a single

employer.

September 14, 2020

Section 45T(b)(1) provides that: (i) an

“eligible automatic contribution arrangement” (EACA) under a plan is an arrangement defined in § 414(w)(3), which

requires that the plan include a cash or

deferred arrangement under which participants are treated as having made an election to make elective contributions at a

uniform percentage of compensation and

that also satisfies certain notice requirements; (ii) a “qualified employer plan”

is a plan defined in § 4972(d), which includes § 401(a) plans, § 403(a) plans, simplified employee pensions under § 408(k)

(SEPs), and SIMPLE retirement accounts

under § 408(p), but excludes governmental plans under § 414(d) and plans maintained by tax-exempt employers; and (iii)

a “credit period” is the period of 3 taxable

years beginning with the first taxable year

for which an eligible employer includes

an EACA in a qualified employer plan that

it sponsors (3-year credit period).

Q. A-1: May an eligible employer receive a credit with respect to taxable years

in more than one 3-year credit period?

A. A-1: No. An eligible employer may

receive a credit for taxable years only

during a single 3-year credit period that

begins when the employer first includes an

EACA in any qualified employer plan. For

example, if an eligible employer, Employer W, first includes an EACA in one of its

qualified employer plans, Plan A, during

Employer W’s 2021 taxable year (so that

the 2021, 2022, and 2023 taxable years

included in Employer W’s 3-year credit

period are all taxable years after § 45T is

applicable), and also includes an EACA in

a second qualified employer plan, Plan B,

during the 2022, 2023, and 2024 taxable

years, Employer W may receive no more

than a $500 credit for each taxable year

during the 3-year credit period that begins

with the 2021 taxable year and is not permitted to receive the credit for the 2024

taxable year. As another example, if a different eligible employer, Employer X, first

included an EACA in one of its qualified

employer plans, Plan C, during Employer X’s 2018 taxable year (so that the only

taxable year included in Employer X’s

3-year credit period after § 45T is applicable is 2020) and also includes an EACA

in a second qualified employer plan, Plan

D, during the 2020, 2021, and 2022 taxable years, Employer X may receive only

568

a $500 credit for the 2020 taxable year and

no credit for subsequent taxable years.

Q. A-2: To be eligible for the § 45T

credit for the second or third taxable years

of an eligible employer’s 3-year credit period that begins when the eligible employer first includes an EACA in a qualified

employer plan, must the eligible employer

include the same EACA in the same plan

in that second or third taxable year?

A. A-2: Yes. For example, if an eligible employer, Employer Y, first includes

an EACA in one of its qualified employer

plans, Plan E, for its 2021 taxable year,

amends Plan E to remove the EACA from

Plan E during its 2022 taxable year, and

includes an EACA in another qualified

employer plan, Plan F, during its 2023 taxable year, Employer Y will not be eligible

for the § 45T credit for its 2023 taxable

year. If, however, rather than amending

Plan E to remove the EACA during the

2022 taxable year, Employer Y spun-off

a portion of Plan E and continued to include the EACA in the spun-off portion of

Plan E during its 2022 and 2023 taxable

years, Employer Y would be treated as

continuing to maintain the same EACA in

the same plan for those taxable years and

would be eligible for the credit for those

taxable years.

Q. A-3: Does the § 45T credit apply

separately to each eligible employer that

participates in a multiple employer plan

(MEP) under § 413(c)?

A. A-3: Yes. The § 45T credit applies

to an eligible employer that participates

in a MEP in the same way that the credit

would apply if each employer participating in the MEP were the sponsor of a single-employer plan maintained by the eligible employer. Thus, each employer that

is an eligible employer (after application

of the rules in Notice 98-4 under which

certain related employers are treated as

a single employer) generally would be

eligible for the credit for the 3-year credit period beginning with the first taxable

year in which the eligible employer’s participating employees are first covered by

an EACA under the MEP. For example, if

an eligible employer, Employer Z, had not

previously maintained a plan that included an EACA, and a MEP, Plan G, first includes an EACA that covers Employer Z’s

participating employees during the 2020

taxable year, the 3-year credit period con-

Bulletin No. 2020–38

sisting of the 2020, 2021, and 2022 taxable years would apply to Employer Z. In

addition, Employer Z would continue to

be eligible for the credit for the 2021 and

2022 taxable years if Plan G spun off the

assets attributable to Employer Z to Plan

H, a single-employer plan maintained by

Employer Z, and Employer Z continued to

include an EACA in Plan H for the 2021

and 2022 taxable years.

B. SECTION 107 OF THE SECURE

ACT

Section 107(a) of the SECURE Act repeals § 219(d)(1) of the Code. Prior to the

repeal of § 219(d)(1), an individual was

not permitted to make contributions to the

individual’s traditional Individual Retirement Arrangement (IRA) for a taxable

year if the individual had attained age 70½

by the last day of the year.

Section 107(b) of the SECURE Act

amends § 408(d)(8)(A) of the Code,

which provides for exclusion from an individual’s gross income of up to $100,000

in qualified charitable distributions. Section 408(d)(8)(B) defines qualified charitable distributions as distributions from

an individual’s IRA, made directly to certain organizations described in § 170(b)

(1)(A) on or after the date the individual

has attained age 70½. The amendment to

§ 408(d)(8)(A) provides that the excludable amount of qualified charitable distributions for a taxable year is reduced by

the aggregate amount of IRA contributions deducted for the taxable year and

any earlier taxable years in which the individual was age 70½ or older by the last

day of the year (post-age 70½ contributions). The amendment further provides

that the excludable amount of qualified

charitable distributions for a taxable year

is not reduced by the amount of post-age

70½ contributions that caused a reduction in the excludable amount of qualified charitable distributions for earlier

taxable years.

Section 107(d) of the SECURE Act

provides that these changes apply to contributions and distributions made for taxable years beginning after December 31,

2019.

Q. B-1: Is a financial institution that

serves as trustee, issuer, or custodian for

an IRA (financial institution) required to

Bulletin No. 2020–38

accept post-age 70½ contributions in 2020

or subsequent taxable years?

A. B-1: No. A financial institution is

not required to accept post-age 70½ contributions. However, a financial institution may choose to accept post-age 70½

contributions beginning on a date after

December 31, 2019, as selected by the financial institution.

Q. B-2: If a financial institution chooses to accept post-age 70½ contributions,

must the financial institution amend its

IRA contracts to provide for those contributions, and if so, what is the deadline for

the amendment?

A. B-2: Yes. A financial institution that

chooses to accept post-age 70½ contributions must amend its IRA contracts to

provide for those contributions. See Q&A

G-1 of this notice for the deadline for a

financial institution to amend its IRA contracts. The IRS expects to issue revised

model IRAs and prototype language addressing changes made to the relevant

Code provisions under the SECURE Act.

Q. B-3: If a financial institution chooses to amend an IRA contract to accept

post-age 70½ contributions, must the financial institution distribute a copy of the

amendment and a new disclosure statement to each benefited individual?

A. B-3: Yes. If a financial institution

chooses to amend an IRA contract to accept post-age 70½ contributions, the financial institution must update the disclosure

statement that is required under § 408(i)

to reflect the contents of the amended IRA

and must distribute copies of the amendment and the amended disclosure statement to each benefited individual. Section 1.408-6(d)(4)(ii)(C) provides that the

financial institution must deliver or mail

the copies to the last known address of the

benefited individual not later than the 30th

day after the later of the date on which the

amendment is adopted or the date it becomes effective.

Q. B-4: May an individual offset the

amount of required minimum distributions for a taxable year from the individual’s IRA by the amount of post-age 70½

contributions for the same taxable year?

A. B-4: No. An individual may not

offset the amount of required minimum

distributions from the individual’s IRA by

the amount of post-age 70½ contributions

for the same taxable year. Contributions

569

and distributions are each separate transactions and are independently reported by

the financial institution to the IRS.

Q. B-5: Is there an example to illustrate

the rules on the reduction of the excludable amount of qualified charitable distributions caused by a deduction of post-age

70½ contributions?

A. B-5: Yes. The following example illustrates the rules:

Example: An individual who turned

age 70½ before 2020 deducts $5,000 for

contributions for each of 2020 and 2021

but makes no contribution for 2022. The

individual makes no qualified charitable

distributions for 2020 and makes qualified

charitable distributions of $6,000 for 2021

and $6,500 for 2022.

(a) The excludable amount of qualified charitable distributions for 2021 is

the $6,000 of qualified charitable distributions reduced by the $10,000 aggregate

amount of post-age 70½ contributions for

2021 and earlier taxable years. For this

individual, these amounts are $5,000 for

each of 2020 and 2021, resulting in no

excludable amount of qualified charitable

distributions for 2021 (that is, $6,000 $10,000 = ($4,000)).

(b) The excludable amount of the qualified charitable distributions for 2022 is the

$6,500 of qualified charitable distributions

reduced by the portion of the $10,000 aggregate amount of post-age 70½ contributions deducted that did not reduce the excludable portion of the qualified charitable

distributions for earlier taxable years.

Thus, $6,000 of the aggregate amount of

post-age 70½ contributions deducted does

not apply for 2022 because that amount

has reduced the excludable amount of

qualified charitable distributions for 2021.

The remaining $4,000 of the aggregate

amount of post-age 70½ contributions

deducted reduces the excludable amount

of any qualified charitable distributions

for subsequent taxable years. Accordingly, the excludable amount of the qualified

charitable distributions for 2022 is $2,500

($6,500 - $4,000 = $2,500).

(c) As described above, because the

$4,000 amount reduced the excludable

amount of qualified charitable distributions for 2022, that $4,000 amount does

not apply again in later years, and no

amount of post-age 70½ contributions remains to reduce the excludable amount of

September 14, 2020

qualified charitable distributions for subsequent taxable years.

C. SECTION 112 OF THE SECURE

ACT

Section 401(k)(2)(D) limits the period

of service with the employer (or employers) maintaining the plan that a qualified

cash or deferred arrangement (CODA)

may require an employee to complete as a

condition to participate. Prior to the enactment of the SECURE Act, § 401(k)(2)(D)

provided that a CODA was not permitted

to require an employee to complete a period of service that extended beyond the

period permitted under § 410(a)(1) (disregarding § 410(a)(1)(B)(i)1). In general,

the period permitted under § 410(a)(1) is

the later of attainment of age 21 or completion of a 12-month period during which

the employee has at least 1,000 hours of

service.

Section 112(a) of the SECURE Act

amended § 401(k)(2)(D) of the Code to

provide that a CODA may not require an

employee to complete a period of service

that extends beyond the close of the earlier

of: (i) the period permitted under § 410(a)

(1) (disregarding § 410(a)(1)(B)(i)); or

(ii) subject to § 401(k)(15), the first period of three consecutive 12-month periods

during each of which the employee has

completed at least 500 hours of service.

Section 112(a) of the SECURE Act

also amended the Code to add § 401(k)

(15), which sets forth additional provisions related to § 401(k)(2)(D)(ii) (the

new rule regarding three consecutive

12-month periods for eligibility purposes). Section 401(k)(15)(A) provides that §

401(k)(2)(D)(ii) will not apply to an employee unless the employee has attained

age 21 by the close of the three consecutive 12-month periods.

Section 401(k)(15)(B)(iii) provides

special vesting rules for an employee

who becomes eligible to participate in a

CODA solely by reason of having completed three consecutive 12-month periods during each of which the employee

completed at least 500 hours of service

(long-term, part-time employee). Under §

401(k)(15)(B)(iii), a long-term, part-time

employee must be credited with a year

of service for purposes of determining

whether the employee has a nonforfeitable right to employer contributions (other

than elective deferrals) for each 12-month

period during which the employee completes at least 500 hours of service. In addition, § 401(k)(15)(B)(iii) modifies the

break-in-service rules of § 411(a)(6) for

a long-term, part-time employee. Under

§ 401(k)(15)(B)(iv), the special vesting

rules of § 401(k)(15)(B)(iii) continue to

apply to a long-term, part-time employee

even if the long-term, part-time employee

subsequently completes a 12-month period during which the employee completes

at least 1,000 hours of service.

Section 112(b) of the SECURE Act

provides that the amendments made by

§ 112 of the SECURE Act apply to plan

years beginning after December 31, 2020,

except that, for purposes of § 401(k)(2)

(D)(ii) of the Code, 12-month periods beginning before January 1, 2021, are not

taken into account.

Q. C-1: Does the exception in §

112(b) of the SECURE Act that excludes

12-month periods beginning before January 1, 2021, from being taken into account

for purposes of the special eligibility rule

in § 401(k)(2)(D)(ii) of the Code also

apply for purposes of the special vesting

rules in § 401(k)(15)(B)(iii) of the Code?

A. C-1: No. Generally, all years of

service with the employer or employers

maintaining the plan must be taken into

account for purposes of determining a

long- term, part-time employee’s nonforfeitable right to employer contributions

under the special vesting rules in § 401(k)

(15)(B)(iii).

Section 401(k)(15)(B)(iii) provides

that, for purposes of determining whether a long-term, part-time employee has a

nonforfeitable right to employer contributions (other than elective deferrals) under

the arrangement, each 12-month period

for which the employee has at least 500

hours of service is treated as a year of service. Section 411(a)(4) generally requires

that all years of service with the employer

or employers maintaining the plan be tak-

en into account for purposes of determining an employee’s nonforfeitable right to

employer contributions, subject to certain

exceptions. Those exceptions include, for

example, years of service before the employee attains age 18 (see § 411(a)(4)(A)).

Section 112(b) of the SECURE Act excludes 12-month periods beginning before

January 1, 2021, for purposes of determining a long-term, part-time employee’s eligibility to participate under § 401(k)(2)(D)

(ii) of the Code. However, § 112(b) of the

SECURE Act does not exclude 12-month

periods beginning before January 1, 2021,

for purposes of determining a long-term,

part-time employee’s nonforfeitable right

to employer contributions under § 401(k)

(15)(B)(iii) of the Code. Therefore, unless

a long-term, part-time employee’s years of

service may be disregarded under § 411(a)

(4), all years of service with the employer

or employers maintaining the plan must

be taken into account for purposes of determining the long-term, part-time employee’s nonforfeitable right to employer

contributions under § 401(k)(15)(B)(iii),

including 12-month periods beginning before January 1, 2021.

D. SECTION 113 OF THE SECURE

ACT

Section 72(t)(1) generally imposes a

10% additional tax on an early distribution from a qualified retirement plan (including an IRA or Roth IRA), unless the

distribution qualifies for one of the exceptions listed in § 72(t)(2).

Section 113 of the SECURE Act

amended § 72(t)(2) of the Code to add a

new exception to the 10% additional tax

for any qualified birth or adoption distribution. Section 72(t)(2)(H) permits an individual to receive a distribution from an

applicable eligible retirement plan of up to

$5,000 without application of the 10% additional tax if the distribution meets the requirements to be a qualified birth or adoption distribution. An applicable retirement

plan is defined in § 72(t)(2)(H)(vi)(I) as

an eligible retirement plan described in

§ 402(c)(8)(B) other than a defined benefit

plan. A qualified birth or adoption distri-

Section 410(a)(1)(B)(i) provides that a plan may require employees to complete two years of service (rather than one) if accrued benefits under the plan are 100% nonforfeitable after not

more than two years of service.

1

September 14, 2020

570

Bulletin No. 2020–38

bution is includible in gross income, but

is not subject to the 10% additional tax

under § 72(t)(1). A qualified birth or adoption distribution is defined as any distribution from an applicable eligible retirement

plan to an individual if made during the

1-year period beginning on the date on

which the child of the individual is born

or the legal adoption by the individual of

an eligible adoptee is finalized.

An individual generally may recontribute a qualified birth or adoption distribution (not to exceed the aggregate amount

of all qualified birth and adoption distributions made to the individual from the

plan) to an applicable eligible retirement

plan in which the individual is a beneficiary and to which a rollover can be made.

However, a qualified birth or adoption distribution is not treated as an eligible rollover distribution for purposes of the direct

rollover rules of § 401(a)(31), the notice

requirement under § 402(f), or the mandatory withholding rules under § 3405. The

Treasury Department and the IRS intend

to issue regulations under § 72(t) that will

address the recontribution rules, including

rules related to the timing of recontributions.

Questions and Answers Relating to

Individuals Receiving Distributions

Q. D-1: What is a qualified birth or

adoption distribution?

A. D-1: A qualified birth or adoption

distribution, as defined in § 72(t)(2)(H)

(iii)(I), is any distribution of up to $5,000

from an applicable eligible retirement plan

to an individual if made during the 1-year

period beginning on the date on which the

child of the individual is born or the legal

adoption by the individual of an eligible

adoptee is finalized.

Q. D-2: Are there any additional requirements for a distribution to be a qualified birth or adoption distribution?

A. D-2: Yes. Section 72(t)(2)(H)(vi)

(III) provides that a distribution to an individual will not be treated as a qualified

birth or adoption distribution with respect

to any child or eligible adoptee unless the

individual includes the name, age, and the

Taxpayer Identification Number (TIN) of

the child or eligible adoptee on the individual’s tax return for the taxable year in

which the distribution is made.

Bulletin No. 2020–38

Q. D-3: Which types of plans are eligible to permit a qualified birth or adoption

distribution?

A. D-3: A qualified birth or adoption

distribution may be made from an applicable eligible retirement plan, which is

defined in § 72(t)(2)(H)(vi)(I) as an eligible retirement plan described in § 402(c)

(8)(B), other than a defined benefit plan.

Therefore, a § 401(a) qualified defined

contribution plan, a § 403(a) annuity plan,

a § 403(b) annuity contract, a governmental § 457(b) plan, or an IRA is eligible to

permit a qualified birth or adoption distribution.

Q. D-4: Is a qualified birth or adoption

distribution subject to the 10% additional

tax under § 72(t)?

A. D-4: No. While a qualified birth or

adoption distribution is includible in gross

income, it is not subject to the 10% additional tax under § 72(t)(1).

Q. D-5: Who is an eligible adoptee?

A. D-5: Section 72(t)(2)(H)(iii)(II) defines the term “eligible adoptee” as any

individual who has not attained age 18

or is physically or mentally incapable of

self-support. However, an eligible adoptee

does not include an individual who is the

child of the taxpayer’s spouse.

Q. D-6: For purposes of determining

who is an eligible adoptee, when is an

individual considered “physically or mentally incapable of self-support?”

A. D-6: For purposes of § 72(t)(2)(H)

(iii)(II), the determination of whether an

individual is physically or mentally incapable of self-support is made in the same

manner as the determination of whether

an individual is disabled under § 72(m)

(7), which defines when an individual is

disabled for purposes of the exception to

the 10% additional tax under § 72(t)(2)

(A)(iii). Section 72(m)(7) provides that an

individual is considered to be disabled if

that individual is unable to engage in any

substantial gainful activity by reason of

any medically determinable physical or

mental impairment that can be expected to

result in death or to be of long-continued

and indefinite duration.

Q. D-7: May each parent receive a

qualified birth or adoption distribution up

to $5,000 with respect to the same child or

eligible adoptee?

A. D-7: Yes. Each parent may receive a

qualified birth or adoption distribution of

571

up to $5,000 with respect to the same child

or eligible adoptee.

Q. D-8: May an individual receive

qualified birth or adoption distributions

with respect to multiple births of children

or adoptions of eligible adoptees (for example, twins or triplets)?

A. D-8: Yes. An individual is permitted to receive qualified birth or adoption

distributions with respect to the birth

of more than one child or the adoption

of more than one eligible adoptee if the

distributions are made during the 1-year

period following the date on which the

children are born or the legal adoption for

the eligible adoptees is finalized. For example, Employee A gives birth to twins

in October 2020. Employee A takes a

$10,000 distribution from her § 401(k)

plan in January 2021. The entire $10,000

distribution is a qualified birth or adoption distribution, assuming that Employee A includes the TINs of her twins and

other required information on her 2021

tax return.

Q. D-9: May an individual recontribute

a qualified birth or adoption distribution to

an applicable eligible retirement plan?

A. D-9: Yes. An individual may recontribute any portion of a qualified birth

or adoption distribution (up to the entire

amount of the qualified birth or adoption

distribution) to an applicable eligible retirement plan in which the individual is a

beneficiary and to which a rollover can be

made under § 402(c), 403(a)(4), 403(b)

(8), 408(d)(3), or 457(e)(16), as applicable.

Questions and Answers Relating to

Applicable Eligible Retirement Plans

Permitting Qualified Birth or Adoption

Distributions

Q. D-10: Is an applicable eligible retirement plan required to permit in-service

distributions for qualified birth or adoption distributions under § 72(t)(2)(H)?

A. D-10: No. It is optional for an applicable eligible retirement plan to permit in-service distributions for qualified

birth or adoption distributions pursuant to

§ 72(t)(2)(H). Plan amendments adopted

to permit qualified birth or adoption distributions are discretionary amendments

for purposes of the plan amendment rules

discussed in Q&A G-1 of this notice.

September 14, 2020

Q. D-11: If an employer chooses to

amend its applicable eligible retirement

plan to permit in-service distributions for

qualified birth or adoption distributions,

what is the deadline for adopting that

amendment?

A. D-11: For information relating to

the deadline for adopting plan amendments, see Q&A G-1 of this notice.

Q. D-12: May a plan sponsor or plan

administrator rely on a reasonable representation from an individual that the individual is eligible for a qualified birth or

adoption distribution?

A. D-12: Yes. In making a determination whether an individual is eligible for

a qualified birth or adoption distribution,

a plan sponsor or plan administrator of

an applicable eligible retirement plan is

permitted to rely on reasonable representations from the individual, unless the plan

sponsor or plan administrator has actual

knowledge to the contrary.

Q. D-13: If an applicable eligible retirement plan permits qualified birth or

adoption distributions, is the plan required

to accept a recontribution of that distribution to the plan?

A. D-13: Yes. An applicable eligible

retirement plan must accept the recontribution of a qualified birth or adoption

distribution from an individual if the following apply:

(a) the plan permits qualified birth or

adoption distributions;

(b) the individual received a qualified

birth or adoption distribution from that

plan; and

(c) the individual is eligible to make

a rollover contribution to that plan at the

time the individual wishes to recontribute

the qualified birth or adoption distribution

to the plan.

Q. D-14: Do qualified birth or adoption distributions from an applicable eligible retirement plan meet the distribution

restriction requirements in §§ 401(k)(2)

(B)(i), 403(b)(7)(A)(i), 403(b)(11), and

457(d)(1)(A)?

A. D-14: Qualified birth or adoption

distributions are treated as meeting the

distribution restrictions for qualified cash

or deferred arrangements under § 401(k)

(2)(B)(i), custodial accounts under §

403(b)(7)(A)(i), annuity contracts under

§ 403(b)(11), and governmental deferred

compensation plans under § 457(d)(1)

September 14, 2020

(A). Thus, for example, an employer may

expand the distribution options under its

plan to allow an amount attributable to

an elective, qualified nonelective, qualified matching, or safe harbor contribution

under a § 401(k) plan to be distributed as

a qualified birth or adoption distribution

even though it is distributed before an otherwise permitted distributable event, such

as severance from employment, disability,

or attainment of age 59½.

Q. D-15: Is a qualified birth or adoption

distribution treated by an applicable eligible retirement plan as an eligible rollover

distribution for purposes of the direct rollover rules, § 402(f) notice requirements,

and the mandatory withholding rules?

A. D-15: No. A qualified birth or adoption distribution is not treated as an eligible rollover distribution for purposes of

the direct rollover rules of § 401(a)(31),

the notice requirement under § 402(f), and

the mandatory withholding rules under

§ 3405. Thus, the plan is not required to

offer an individual a direct rollover with

respect to a qualified birth or adoption

distribution. In addition, the plan administrator is not required to provide a § 402(f)

notice. Finally, the plan administrator or

payor of the qualified birth or adoption

distribution is not required to withhold

an amount equal to 20% of the distribution, as generally is required in § 3405(c)

(1). However, a qualified birth or adoption

distribution is subject to the voluntary

withholding requirements of § 3405(b)

and § 35.3405-1T.

Q. D-16: Is a recontribution made with

respect to a qualified birth or adoption

distribution from an applicable eligible retirement plan other than an IRA treated as

the direct transfer of an eligible rollover

distribution as defined in § 402(c)(4)?

A. D-16: Yes. Section 72(t)(2)(H)(v)

(III) provides that, in the case of a recontribution made with respect to a qualified

birth or adoption distribution from an

applicable eligible retirement plan other than an IRA, an individual is treated

as having received the distribution as an

eligible rollover distribution (as defined

in § 402(c)(4)) and as having transferred

the amount to an applicable eligible retirement plan in a direct trustee-to-trustee

transfer within 60 days of the distribution.

Q. D-17: Is a recontribution made with

respect to a qualified birth or adoption dis-

572

tribution from an IRA treated as the direct

transfer of an eligible rollover distribution

as defined in § 408(d)(3)?

A. D-17: Yes. Section 72(t)(2)(H)(v)

(IV) provides that, in the case of a recontribution made with respect to a qualified

birth or adoption distribution from an

IRA, an individual is treated as having received the distribution as an eligible rollover distribution (as defined in § 408(d)

(3)) and as having transferred the amount

to an applicable eligible retirement plan in

a direct trustee-to-trustee transfer within

60 days of the distribution.

Q. D-18: If an applicable eligible retirement plan does not permit qualified

birth or adoption distributions, may an

individual treat an otherwise permissible

in-service distribution as a qualified birth

or adoption distribution?

A. D-18: Yes. If an applicable eligible

retirement plan does not permit qualified

birth or adoption distributions and an individual receives an otherwise permissible

in-service distribution that meets the requirements of a qualified birth or adoption

distribution, the individual may treat the

distribution as a qualified birth or adoption

distribution on the individual’s federal income tax return. The distribution, while

includible in gross income, is not subject

to the 10% additional tax under § 72(t)

(1). If the individual decides to recontribute the amount to an eligible retirement

plan, the individual may recontribute the

amount to an IRA.

E. SECTION 116 OF THE SECURE

ACT

Section 408(o) provides that designated nondeductible contributions may be

made on behalf of an individual to an IRA.

Nondeductible contributions may not exceed the excess of the amount allowable

as a deduction under § 219(b) (determined

without regard to the § 219(g) reduction

in the deductible amount for active participants in certain pension plans) over

the amount allowable as a deduction under § 219(b) (determined with regard to §

219(g)).

Section 415(c) provides limitations

on annual additions under a defined contribution plan. Under § 415(c)(1), annual

additions may not exceed the lesser of

(A) $40,000 (increased by cost-of-living

Bulletin No. 2020–38

adjustments under § 415(d)(1)(C)), or (B)

100% of the participant’s compensation as

defined in § 415(c)(3). Section 415(c)(2)

provides that annual additions are the sum

of employer contributions, employee contributions, and forfeitures.

A difficulty of care payment is a type

of qualified foster care payment that is excludable from gross income under § 131.

Because a difficulty of care payment is

excludable from gross income, it was not,

prior to the SECURE Act, included in a

participant’s compensation for purposes

of calculating the annual additions limit

of § 415(c)(1). Accordingly, an employee

who received difficulty of care payments

from an employer was not permitted to

make contributions to, or receive allocations under, the employer’s plan based on

the difficulty of care payments.

Section 116(a) of the SECURE Act

adds § 408(o)(5) to the Code to allow a

taxpayer to elect to increase the nondeductible contribution limit by the amount

of excludable difficulty of care payments

in a situation in which the taxpayer does

not have sufficient compensation that is

includible in the taxpayer’s gross income

to equal the deductible amount under

§ 219(b)(5) of the Code. The addition of

§ 408(o)(5) applies to contributions made

after December 20, 2019.

Section 116(b) of the SECURE Act

adds § 415(c)(8) to the Code to increase

the annual additions limit for retirement

plans to include difficulty of care payments. Section 415(c)(8)(A), as amended,

provides that a participant’s compensation

for purposes of § 415(c)(1) is increased

by the amount of excludable difficulty of

care payments. Accordingly, a participant

may make contributions to, or receive allocations under, the plan that are based on

the participant receiving difficulty of care

payments, even if the participant has no

other compensation. Section 415(c)(8)

(B), as amended, provides that if a contribution is made based on difficulty of

care payments, the contribution is treated

as investment in the contract and will not

cause a plan to be treated as failing any requirements of §§ 1 through 1400Z-2 solely by reason of allowing the contribution.

The addition of § 415(c)(8) applies to plan

years beginning after December 31, 2015.

Q. E-1: Are difficulty of care payments

received by an employee from a person

Bulletin No. 2020–38

other than his or her employer includible

in the definition of compensation under

that employer’s plan?

A. E-1: No. Compensation under §

415(c)(3) only includes compensation

from an individual’s employer. Thus, difficulty of care payments received by an

employee from a person other than his

or her employer are not includible in the

definition of compensation under that employer’s plan.

Q. E-2: If an employer does not make

difficulty of care payments to its employees that are eligible to participate in the

employer’s plan, must the plan be amended to include difficulty of care payments

in the plan’s definition of § 415(c)(1) compensation?

A. E-2: No. If an employer does not

make difficulty of care payments to its

employees that are eligible to participate

in the employer’s plan, then the plan does

not need to be amended to include difficulty of care payments in the plan’s definition of § 415(c)(1) compensation. However, if the employer changes its practice and

begins to make difficulty of care payments

to its employees, the plan must be amended timely to include difficulty of care payments in that definition.

Q. E-3: Does the excise tax on excess

IRA contributions under § 4973 apply to

nondeductible IRA contributions that are

based on difficulty of care payments?

A. E-3: The applicability of the excise

tax on excess IRA contributions under

§ 4973 to nondeductible IRA contributions that are based on difficulty of care

payments will be addressed in future guidance.

F. SECTION 104 OF THE MINERS

ACT

Under § 401(a)(36), a pension plan

does not fail to be qualified solely because

the plan provides that a distribution may

be made from the plan to an employee

who has attained a minimum age and who

is not separated from employment at the

time of the distribution (generally referred

to as an in-service distribution). Prior to

the effective date of the Miners Act, the

minimum age for allowable in-service distributions under § 401(a)(36) was age 62.

Section 104(a) of the Miners Act lowers

the minimum age from age 62 to age 59½.

573

In order to be an eligible deferred compensation plan under § 457(b), a plan must

satisfy the distribution requirements of

§ 457(d). Section 457(d)(1)(A) provides

that amounts under the plan may not be

made available earlier than the occurrence

of certain events. Prior to the enactment

of the Miners Act, § 457(d)(1)(A)(i) provided, in general, that amounts may not be

made available to participants earlier than

the calendar year in which a participant attains age 70½ or when a participant has a

severance from employment with the employer. Section 104(b) of the Miners Act

amended § 457(d)(1)(A)(i) of the Code to

provide that, in the case of a governmental

plan under § 457(b) of the Code (that is,

a plan maintained by an employer that is

a State, a political subdivision of a State,

or any agency or instrumentality of a

State or political subdivision of a State, as

provided in § 457(e)(1)(A) of the Code),

amounts may be made available as early

as the calendar year in which a participant

attains age 59½.

Pursuant to § 104(c) of the Miners Act,

the amendments made by paragraphs (a)

and (b) of § 104 of the Miners Act apply

to plan years beginning after December

31, 2019.

Q. F-1: Is a plan qualified under §

401(a) of the Code (qualified plan) or a

governmental plan under § 457(b) of the

Code required to implement the changes

made by § 104 of the Miners Act?

A. F-1: No. In general, neither a qualified plan nor a § 457(b) governmental plan

is required to provide for in-service distributions. Thus, if a plan does not provide

for in-service distributions, or provides

for in-service distributions at an age that

is later than age 59½ (the minimum age

permitted by § 104(a) or (b) of the Miners Act), the plan is not required to be

amended to permit in-service distributions

to commence at age 59½. For example,

a qualified plan that provides for in-service distributions commencing at age 62

is not required to be amended to provide

for in-service distributions commencing at

age 59½.

Q. F-2: If a pension plan is amended to

lower its minimum age for an in-service

distribution from age 62 to age 59½ pursuant to § 401(a)(36), may the plan also

change its definition of normal retirement

age to age 59½ or later without violating

September 14, 2020

other qualification requirements, such

as the definitely determinable benefit requirement in § 1.401(a)-1(b)(1)(i)?

A. F-2: The in-service distribution rule

in § 401(a)(36) is separate from the definitely determinable benefit requirement in

§ 1.401(a)-1(b)(1)(i). A plan does not fail to

satisfy the requirements in § 1.401(a)-1(b)

(1)(i) merely because the plan provides for

in-service distributions in accordance with

§ 401(a)(36). In addition to satisfying other applicable qualification requirements

(such as § 411(d)(6)), any change to a

pension plan’s definition of normal retirement age must satisfy the requirements in

§ 1.401(a)-1(b)(2), including the requirement that a normal retirement age must be

an age that is not earlier than the earliest

age that is reasonably representative of the

typical retirement age for the industry in

which the covered workforce is employed.

A normal retirement age of age 62 or later

is deemed to satisfy the reasonably representative requirement (see § 1.401(a)-1(b)

(2)(ii)). For purposes of the reasonably

representative requirement, governmental

pension plans may continue to rely on proposed regulations that were published in

the Federal Register on January 27, 2016

(81 FR 4599).

G. PROVISIONS RELATING TO

PLAN AMENDMENTS

Section 601 of the SECURE Act provides, in general, that a retirement plan or

annuity contract will be treated as being

operated in accordance with the terms of

the plan during the period described in

paragraph (3) in this section G and, except as provided by the Secretary of the

Treasury (Secretary), or the Secretary’s

delegate, a retirement plan will not fail to

satisfy the anti-cutback requirements of

§ 411(d)(6) of the Code or § 204(g) of the

Employee Retirement Income Security

Act of 1974, Pub. L. 93-406, 88 Stat. 829

(1974), as amended (ERISA),2 as a result

of a plan amendment made pursuant to a

provision of the SECURE Act or the regulations thereunder, provided that:

(1) the amendment is adopted no later

than the last day of the first plan year beginning on or after January 1, 2022, or, for

an applicable collectively bargained plan

(a plan maintained pursuant to one or more

collective bargaining agreements between

employee representatives and one or more

employers ratified before December 20,

2019) or a § 414(d) governmental plan,

the last day of the first plan year beginning

on or after January 1, 2024, or such later

date as the Secretary may prescribe (the §

601 date);

(2) the amendment applies retroactively to the effective date of the SECURE

Act provision or the regulations thereunder (or, in the case of an amendment not

required by a provision of the SECURE

Act or the regulations thereunder, the effective date specified by the plan); and

(3) the plan or contract is operated as

if the amendment were in effect during

the period beginning on the effective date

of the SECURE Act provision or the regulations thereunder (or, in the case of an

amendment not required by a provision of

the SECURE Act or the regulations thereunder, the effective date specified by the

plan or contract) and ending on the § 601

date or, if earlier, the date the amendment

is adopted.

Rev. Proc. 2016-37, 2016-29 I.R.B.

136, as modified by Rev. Proc. 2017-41,

2017-29 I.R.B. 92 and Rev. Proc. 202040, this Bulletin,3 sets forth plan amendment deadlines for qualified plans. Rev.

Proc. 2016-37, as modified by Rev. Proc.

2020-40, provides that, except as otherwise provided by statute, or in regulations

or other guidance published in the Internal

Revenue Bulletin, the plan amendment

deadline for a discretionary amendment

is the end of the plan year in which the

plan amendment is operationally put into

effect, or, in the case of a governmental

plan, the later of the end of the plan year in

which the plan amendment is operationally put into effect or 90 days after the close

of the second regular legislative session

of the legislative body with the authority

to amend the plan that begins on or after

the date the plan amendment is operationally put into effect. An amendment that is

made pursuant to the SECURE Act, the

regulations thereunder, or § 104 of the

Miners Act, that is not required to be adopted in order for the plan to satisfy the

requirements of the Code is a discretionary amendment.

Rev. Proc. 2019-39, 2019-42 I.R.B.

945, as modified by Notice 2020-35,

2020-25 I.R.B. 948, and Rev. Proc. 202040, sets forth plan amendment deadlines

for § 403(b) plans. Rev. Proc. 2019-39,

as modified, provides that, effective for

plan years beginning on or after January

1, 2020, except as otherwise provided by

statute, or in regulations or other guidance published in the Internal Revenue

Bulletin, the plan amendment deadline

for a discretionary amendment is the end

of the plan year in which the plan amendment is operationally put into effect, or,

in the case of a governmental plan, the

later of the end of the plan year in which

the plan amendment is operationally put

into effect or 90 days after the close of

the second regular legislative session of

the legislative body with the authority to

amend the plan that begins on or after the

date the plan amendment becomes effective.

Section 457(b) provides, generally,

that a § 457(b) governmental plan that is

administered in a manner that is inconsistent with the requirements of § 457(b)

is not treated as a § 457(b) governmental

plan as of the first plan year beginning

more than 180 days after the date of notification by the Secretary of the inconsistency unless the employer corrects the

inconsistency before the first day of such

plan year.

Under § 408(a), an IRA that is an individual retirement account is a trust created

or organized in the United States for the

exclusive benefit of an individual or his

beneficiaries, provided that the written

instrument creating the trust meets certain

requirements. Under § 408(b), an IRA that

is an individual retirement annuity is an

annuity contract or endowment contract

Section 411(d)(6) provides, generally, that a plan will not satisfy § 401(a) if an amendment to the plan decreases a participant’s accrued benefit. For this purpose, a plan amendment that has

the effect of eliminating or reducing an early retirement benefit or a retirement-type subsidy or eliminating an optional form of benefit with respect to benefits attributable to service before

the amendment is treated as reducing accrued benefits. Section 204(g) of ERISA provides parallel rules to the rules of § 411(d)(6) of the Code.

3

Other revisions of Rev. Proc. 2016-37 include Notice 2020-35, 2020-25 I.R.B. 948; Rev. Proc. 2020-10, 2020-2 I.R.B. 295; Rev. Proc. 2019-20, 2019-20 I.R.B. 1182; Rev. Proc. 2018-42,

2018-36 I.R.B. 424; and Rev. Proc. 2018-21, 2018-14 I.R.B. 467.

2

September 14, 2020

574

Bulletin No. 2020–38

that is issued by an insurance company

and that meets certain requirements.

Q. G-1: When must a retirement plan

be amended to reflect the provisions of the

SECURE Act, the regulations thereunder,

or § 104 of the Miners Act?

A. G-1: The deadlines to amend a retirement plan for provisions of the SECURE Act, the regulations thereunder, or

§ 104 of the Miners Act are set forth in this

Q&A G-1. These amendment deadlines

apply to both required and discretionary

plan amendments.

A sponsor of a § 403(b) plan may be

entitled to amend its plan to reflect the SECURE Act or the regulations thereunder

after the dates set forth in the preceding

paragraph, in accordance with Rev. Proc.

2019-39, as modified by Notice 2020-35

and Rev. Proc. 2020-40. However, under

Rev. Proc. 2019-39, amendments to a

§ 403(b) plan that is subject to ERISA that

are made after the dates set forth in the

preceding paragraph are not entitled to the

anti-cutback relief provided by § 204(g)

of ERISA.

(a) Qualified plans

(c) Section 457(b) governmental plans

In general, for a qualified plan that is

not a governmental plan within the meaning of § 414(d) of the Code, or an applicable collectively bargained plan, the deadline to amend a plan for provisions of the

SECURE Act, the regulations thereunder,

or § 104 of the Miners Act is the last day

of the first plan year beginning on or after January 1, 2022. The plan amendment

deadline for a qualified governmental

plan, as defined in § 414(d), or for an applicable collectively bargained plan, is the

last day of the first plan year beginning on

or after January 1, 2024.

A sponsor of a qualified plan may amend

its plan to reflect the SECURE Act, the regulations thereunder, or § 104 of the Miners

Act after the dates set forth in the preceding

paragraph, in accordance with Rev. Proc.

2016-37, as modified by Rev. Proc. 201741 and Rev. Proc. 2020-40. However, under Rev. Proc. 2016-37, amendments made

after the dates set forth in the preceding

paragraph, are not entitled to the anti-cutback relief provided by § 411(d)(6) of the

Code or § 204(g) of ERISA.

The deadline to amend a governmental plan under § 457(b) of the Code for

provisions of the SECURE Act, the regulations thereunder, or § 104 of the Miners Act is the later of (i) the last day of

the first plan year beginning on or after

January 1, 2024, or (ii) if applicable, the

first day of the first plan year beginning

more than 180 days after the date of notification by the Secretary that the plan was

administered in a manner that is inconsistent with the requirements of § 457(b) of

the Code.

(b) Section 403(b) plans

In general, the deadline for a § 403(b)

plan that is not maintained by a public

school, as described in § 403(b)(1)(A)(ii),

to amend a plan for provisions of the SECURE Act or the regulations thereunder is

the last day of the first plan year beginning on or after January 1, 2022. The plan

amendment deadline for a § 403(b) plan

that is maintained by a public school, as

described in § 403(b)(1)(A)(ii), is the last

day of the first plan year beginning on or

after January 1, 2024.

Bulletin No. 2020–38

(d) Individual retirement plans

The deadline to amend the trust governing an IRA that is an individual retirement account or the contract issued by an

insurance company with respect to an IRA

that is an individual retirement annuity

for provisions of the SECURE Act or the

regulations thereunder is December 31,

2022, or such later date as the Secretary

prescribes in guidance.

In the case of a deemed IRA described

in § 408(q), the deadline to amend the

deemed IRA provisions is the deadline

applicable to the plan under which the

deemed IRA is established.

ning before January 1, 2021, for purposes

of determining a long-term, part-time employee’s nonforfeitable right to employer

contributions pursuant to § 112 of the SECURE Act, while still complying with the

requirements of §§ 401(k)(15)(B)(iii) and

411(a)(4) of the Code.

Comments should be submitted in

writing on or before November 2, 2020,

and should include a reference to Notice

2020-68. Comments may be submitted in

one of two ways:

(1) Electronically via the Federal

eRulemaking Portal at www.regulations.

gov (type IRS-2020-0027 in the search

field on the regulations.gov homepage to

find this notice and submit comments).

(2) Alternatively, by mail to: Internal

Revenue Service, Attn: CC:PA:LPD:PR

(Notice 2020-68), Room 5203, P.O. Box

7604, Ben Franklin Station, Washington,

D.C. 20044.

All commenters are strongly encouraged to submit public comments electronically. The IRS expects to have limited personnel available to process public

comments that are submitted on paper

through mail. Until further notice, any

comments submitted on paper will be

considered to the extent practicable. The

Treasury Department and the IRS will

publish for public availability any comment submitted electronically, and to the

extent practicable on paper, to its public

docket.

IV. DRAFTING INFORMATION

The principal author of this notice is

Tom Morgan of the Office of the Associate Chief Counsel (Employee Benefits,

Exempt Organizations, and Employment

Taxes). For further information regarding this notice, please contact Mr. Morgan at (202) 317-6700 (not a toll-free

number).

III. REQUEST FOR COMMENTS

The Treasury Department and the IRS

invite comments and suggestions regarding the matters discussed in this notice. In

particular, in connection with section II.C.

of this notice, the Treasury Department

and the IRS request comments on how to

reduce potential administrative burdens

related to counting years of service begin-

575

Revenue Procedure

2020-40

SECTION 1. PURPOSE

This revenue procedure modifies section 15.05 of Rev. Proc. 2016-37, 2016-

September 14, 2020

29 I.R.B. 136, and section 12.02 of Rev.

Proc. 2019-39, 2019-42 I.R.B. 945, to

expand the situations in which the plan

amendment deadline for discretionary

amendments made to qualified pre-approved plans and § 403(b) pre-approved

plans may be extended. These modifications are consistent with the extensions of

the plan amendment deadlines for discretionary amendments set forth in section

8.02 of Rev. Proc. 2016-37 with respect to

qualified individually designed plans and

section 6.02 of Rev. Proc. 2019-39 with

respect to § 403(b) individually designed

plans.

SECTION 2. BACKGROUND

.01 Rev. Proc. 2016-37 sets forth procedures for obtaining determination letters

for qualified individually designed plans

and opinion letters for qualified pre-approved plans submitted to the Internal

Revenue Service (IRS), including providing plan amendment deadlines for interim

and discretionary amendments made to

these plans.

.02 Section 15.04(2) of Rev. Proc.

2016-37 sets forth the deadline for

the timely adoption of a discretionary

amendment to a qualified pre-approved

plan. In general, a discretionary amendment is considered to have been adopted

timely if the plan amendment is adopted

by the end of the plan year in which the

plan amendment is operationally put into

effect.

.03 Section 15.05 of Rev. Proc. 201637 provides that the deadline set forth in

section 15.04 applies unless a statutory

provision or guidance issued by the IRS

sets forth an earlier deadline to timely

adopt a discretionary amendment with respect to a plan year.

September 14, 2020

.04 Rev. Proc. 2019-39 sets forth procedures for obtaining opinion and advisory letters for § 403(b) pre-approved plans

submitted to the IRS and provides plan

amendment deadlines for interim and discretionary amendments made to § 403(b)

pre-approved plans and for discretionary

amendments made to § 403(b) individually designed plans.

.05 Section 12.01 of Rev. Proc. 201939 sets forth the deadline for the timely

adoption of a discretionary amendment to

a § 403(b) pre-approved plan. In general,

a discretionary amendment is considered

to have been adopted timely if the plan

amendment is adopted by the end of the

plan year in which the plan amendment is

operationally put into effect.

.06 Section 12.02 of Rev. Proc. 2019-39

provides that section 12.01 applies unless

a statutory provision or guidance issued

by the IRS sets forth an earlier deadline to

timely adopt a discretionary amendment

with respect to a plan year.

SECTION 3. MODIFICATION OF

REV. PROC. 2016-37

.01 Section 15.05 of Rev. Proc. 201637 is revised to read as follows:

Section 15.04 of this revenue procedure

applies unless (1) a statutory provision,

or regulations or other guidance published in the Internal Revenue Bulletin,

sets forth a deadline to timely adopt a

discretionary amendment with respect

to a plan year that is either earlier or

later than the deadlines under section

15.04, or (2) a statutory provision or

guidance provides another specific

deadline for the adoption of a particular type of interim amendment that is

either earlier or later than the deadlines

under section 15.04.

576

SECTION 4. MODIFICATION OF

REV. PROC. 2019-39

.01 Section 12.02 of Rev. Proc. 201939 is revised to read as follows:

Exceptions to section 12.01 plan

amendment deadlines. Section 12.01

applies unless (1) a statutory provision,

or regulations or other guidance published in the Internal Revenue Bulletin,

sets forth a deadline to timely adopt a

discretionary amendment with respect

to a plan year that is either earlier or

later than the deadlines under section

12.01, or (2) a statutory provision or

guidance provides another specific

deadline for the adoption of a particular type of interim amendment that is

earlier or later than the deadlines under

section 12.01.

SECTION 5. EFFECT ON OTHER

DOCUMENTS

Rev. Proc. 2016-37 and Rev. Proc.

2019-39 are modified.

SECTION 6. EFFECTIVE DATE

The modifications in this revenue procedure are effective as of September 2,

2020.

SECTION 7. DRAFTING

INFORMATION

The principal author of this revenue

procedure is Arslan Malik of the Office

of Associate Chief Counsel (Employee

Benefits, Exempt Organizations, and Employment Taxes). For further information

regarding this revenue procedure contact

Employee Plans at (513) 975-6319 (not a

toll-free number).

Bulletin No. 2020–38

Part IV

Deletions From Cumulative

List of Organizations,

Contributions to Which are

Deductible Under Section

170 of the Code

Announcement 2020-15

The Internal Revenue Service has revoked its determination that the organizations listed below qualify as organizations described in sections 501(c)(3) and

170(c)(2) of the Internal Revenue Code

of 1986.

Generally, the IRS will not disallow deductions for contributions made to a listed

organization on or before the date of announcement in the Internal Revenue Bulletin that an organization no longer qualifies.

However, the IRS is not precluded from disallowing a deduction for any contributions

made after an organization ceases to qualify

under section 170(c)(2) if the organization

has not timely filed a suit for declaratory

judgment under section 7428 and if the contributor (1) had knowledge of the revocation

of the ruling or determination letter, (2) was

aware that such revocation was imminent, or

(3) was in part responsible for or was aware

of the activities or omissions of the organization that brought about this revocation.

If on the other hand a suit for declaratory judgment has been timely filed, contributions from individuals and organizations

described in section 170(c)(2) that are otherwise allowable will continue to be deductible. Protection under section 7428(c) would

begin on September 14, 2020 and would end

on the date the court first determines the organization is not described in section 170(c)

(2) as more particularly set for in section

7428(c)(1). For individual contributors, the

maximum deduction protected is $1,000,

with a husband and wife treated as one contributor. This benefit is not extended to any

individual, in whole or in part, for the acts or

omissions of the organization that were the

basis for revocation.

NAME OF ORGANIZATION

Effective Date of

Revocation

LOCATION

National Outreach Foundation, Inc.

1/01/2012

Banning, CA

Bulletin No. 2020–38

577

September 14, 2020

Announcement 2020-16

Section 7428(c) Validation

of Certain Contributions

Made During Pendency

of Declaratory Judgment

Proceedings

This announcement serves notice to

potential donors that the organization

listed below has recently filed a timely

declaratory judgment suit under section

Name of Organization

7428 of the Code, challenging revocation

of its status as an eligible donee under section 170(c)(2).

Protection under section 7428(c) of the

Code begins on the date that the notice

of revocation is published in the Internal

Revenue Bulletin and ends on the date

on which a court first determines that an

organization is not described in section

170(c)(2), as more particularly set forth in

section 7428(c)(1).

In the case of individual contributors,

the maximum amount of contributions

protected during this period is limited to

$1,000.00, with a husband and wife being

treated as one contributor. This protection

is not extended to any individual who was

responsible, in whole or in part, for the acts

or omissions of the organization that were

the basis for the revocation. This protection

also applies (but without limitation as to

amount) to organizations described in section 170(c)(2) which are exempt from tax

under section 501(a). If the organization

ultimately prevails in its declaratory judgment suit, deductibility of contributions

would be subject to the normal limitations

set forth under section 170.

Date Suit Filed

Effective Date of

Revocation

Location

National Outreach Foundation, Inc.

11/20/2019

1/01/2012

Banning, CA

September 14, 2020

578

Bulletin No. 2020–38

Definition of Terms

Revenue rulings and revenue procedures

(hereinafter referred to as “rulings”) that

have an effect on previous rulings use the

following defined terms to describe the

­effect:

Amplified describes a situation where

no change is being made in a prior published position, but the prior position is

being extended to apply to a variation of

the fact situation set forth therein. Thus, if

an earlier ruling held that a principle applied to A, and the new ruling holds that

the same principle also applies to B, the

earlier ruling is amplified. (Compare with

modified, below).

Clarified is used in those instances

where the language in a prior ruling is being made clear because the language has

caused, or may cause, some confusion. It

is not used where a position in a prior ruling is being changed.

Distinguished describes a situation

where a ruling mentions a previously published ruling and points out an essential

difference between them.

Modified is used where the substance

of a previously published position is being

changed. Thus, if a prior ruling held that a

principle applied to A but not to B, and the

new ruling holds that it applies to both A

and B, the prior ruling is modified because

it corrects a published position. (Compare

with amplified and clarified, above).

Obsoleted describes a previously published ruling that is not considered determinative with respect to future transactions.

This term is most commonly used in a ruling

that lists previously published rulings that

are obsoleted because of changes in laws or

regulations. A ruling may also be obsoleted

because the substance has been included in

regulations subsequently adopted.

Revoked describes situations where the

position in the previously published ruling

is not correct and the correct position is

being stated in a new ruling.

Superseded describes a situation where

the new ruling does nothing more than

restate the substance and situation of a

previously published ruling (or rulings).

Thus, the term is used to republish under

the 1986 Code and regulations the same

position published under the 1939 Code

and regulations. The term is also used

when it is desired to republish in a single

ruling a series of situations, names, etc.,

that were previously published over a

period of time in separate rulings. If the

new ruling does more than restate the substance of a prior ruling, a combination of

terms is used. For example, modified and

superseded describes a situation where the

substance of a previously published ruling

is being changed in part and is continued

without change in part and it is desired to

restate the valid portion of the previously published ruling in a new ruling that is

self contained. In this case, the previously

published ruling is first modified and then,

as modified, is superseded.

Supplemented is used in situations in

which a list, such as a list of the names of

countries, is published in a ruling and that

list is expanded by adding further names

in subsequent rulings. After the original

ruling has been supplemented several

times, a new ruling may be published that

includes the list in the original ruling and

the additions, and supersedes all prior rulings in the series.

Suspended is used in rare situations to

show that the previous published rulings

will not be applied pending some future

action such as the issuance of new or

amended regulations, the outcome of cases in litigation, or the outcome of a Service study.

Abbreviations

The following abbreviations in current use

and formerly used will appear in material

published in the Bulletin.

A—Individual.

Acq.—Acquiescence.

B—Individual.

BE—Beneficiary.

BK—Bank.

B.T.A.—Board of Tax Appeals.

C—Individual.

C.B.—Cumulative Bulletin.

CFR—Code of Federal Regulations.

CI—City.

COOP—Cooperative.

Ct.D.—Court Decision.

CY—County.

D—Decedent.

DC—Dummy Corporation.

DE—Donee.

Del. Order—Delegation Order.

DISC—Domestic International Sales Corporation.

DR—Donor.

E—Estate.

EE—Employee.

E.O.—Executive Order.

ER—Employer.

Bulletin No. 2020–38

ERISA—Employee Retirement Income Security Act.

EX—Executor.

F—Fiduciary.

FC—Foreign Country.

FICA—Federal Insurance Contributions Act.

FISC—Foreign International Sales Company.

FPH—Foreign Personal Holding Company.

F.R.—Federal Register.

FUTA—Federal Unemployment Tax Act.

FX—Foreign corporation.

G.C.M.—Chief Counsel’s Memorandum.

GE—Grantee.

GP—General Partner.

GR—Grantor.

IC—Insurance Company.

I.R.B.—Internal Revenue Bulletin.

LE—Lessee.

LP—Limited Partner.

LR—Lessor.

M—Minor.

Nonacq.—Nonacquiescence.

O—Organization.

P—Parent Corporation.

PHC—Personal Holding Company.

PO—Possession of the U.S.

PR—Partner.

PRS—Partnership.

i

PTE—Prohibited Transaction Exemption.

Pub. L.—Public Law.

REIT—Real Estate Investment Trust.

Rev. Proc.—Revenue Procedure.

Rev. Rul.—Revenue Ruling.

S—Subsidiary.

S.P.R.—Statement of Procedural Rules.

Stat.—Statutes at Large.

T—Target Corporation.

T.C.—Tax Court.

T.D.—Treasury Decision.

TFE—Transferee.

TFR—Transferor.

T.I.R.—Technical Information Release.

TP—Taxpayer.

TR—Trust.

TT—Trustee.

U.S.C.—United States Code.

X—Corporation.

Y—Corporation.

Z—Corporation.

September 14, 2020

Numerical Finding List1

Bulletin 2020–38

Announcements:

2020-8, 2020-32 I.R.B. 244

2020-9, 2020-32 I.R.B. 244

2020-10, 2020-33 I.R.B. 385

2020-11, 2020-33 I.R.B. 385

2020-13, 2020-35 I.R.B. 492

2020-14, 2020-36 I.R.B. 549

2020-15, 2020-38 I.R.B. 577

2020-16, 2020-38 I.R.B. 578

Notices:

2020-43, 2020-27 I.R.B. 1

2020-45, 2020-27 I.R.B. 3

2020-46, 2020-27 I.R.B. 7

2020-47, 2020-27 I.R.B. 7

2020-49, 2020-27 I.R.B. 8

2020-50, 2020-28 I.R.B. 35

2020-48, 2020-29 I.R.B. 72

2020-51, 2020-29 I.R.B. 73

2020-52, 2020-29 I.R.B. 79

2020-53, 2020-30 I.R.B. 151

2020-54, 2020-31 I.R.B. 226

2020-56, 2020-32 I.R.B. 239

2020-57, 2020-32 I.R.B. 240

2020-58, 2020-34 I.R.B. 419

2020-55, 2020-35 I.R.B. 467

2020-61, 2020-35 I.R.B. 468

2020-62, 2020-35 I.R.B. 476

2020-63, 2020-35 I.R.B. 491

2020-60, 2020-36 I.R.B. 514

2020-64, 2020-36 I.R.B. 519

2020-65, 2020-38 I.R.B. 567

2020-68, 2020-38 I.R.B. 567

Revenue Procedures:—Continued

2020-36, 2020-32 I.R.B. 243

2020-37, 2020-33 I.R.B. 381

2020-38, 2020-36 I.R.B. 522

2020-39, 2020-36 I.R.B. 546

2020-40, 2020-38 I.R.B. 575

Revenue Rulings:

2020-14, 2020-28 I.R.B. 33

2020-15, 2020-32 I.R.B. 233

2020-16, 2020-37 I.R.B. 550

2020-17, 2020-37 I.R.B. 552

Treasury Decisions:

9899, 2020-29 I.R.B. 62

9900, 2020-30 I.R.B. 143

9903, 2020-32 I.R.B. 235

9901, 2020-33 I.R.B. 266

9902, 2020-33 I.R.B. 349

9904, 2020-34 I.R.B. 413

9907, 2020-38 I.R.B. 559

Proposed Regulations:

REG-119307-19, 2020-28 I.R.B. 44

REG-112339-19, 2020-30 I.R.B. 155

REG-117589-18, 2020-30 I.R.B. 184

REG-125716-18, 2020-30 I.R.B. 197

REG-123027-19, 2020-31 I.R.B. 229

REG-130081-19, 2020-32 I.R.B. 246

REG-127732-19, 2020-33 I.R.B. 385

REG-111879-20, 2020-34 I.R.B. 421

REG-112042-19, 2020-34 I.R.B. 422

REG-132766-18, 2020-34 I.R.B. 436

REG-132434-17, 2020-35 I.R.B. 508

REG-116475-19, 2020-37 I.R.B. 553

Revenue Procedures:

2020-16, 2020-27 I.R.B. 10

2020-31, 2020-27 I.R.B. 12

2020-35, 2020-29 I.R.B. 82

A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2019–27 through 2019–52 is in Internal Revenue Bulletin

2019–52, dated December 27, 2019.

1

September 14, 2020

ii

Bulletin No. 2020–38

Finding List of Current Actions on

Previously Published Items1

Bulletin 2020–38

A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2019–27 through 2019–52 is in Internal Revenue Bulletin

2019–52, dated December 27, 2019.

1

Bulletin No. 2020–38

iii

September 14, 2020

Internal Revenue Service

Washington, DC 20224

Official Business

Penalty for Private Use, $300

INTERNAL REVENUE BULLETIN

The Introduction at the beginning of this issue describes the purpose and content of this publication. The weekly Internal Revenue

Bulletins are available at www.irs.gov/irb/.

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If you have comments concerning the format or production of the Internal Revenue Bulletin or suggestions for improving it,

we would be pleased to hear from you. You can email us your suggestions or comments through the IRS Internet Home Page

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