# Bulletin No. 2020–38

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/agency%3Airs%3A1e4b28eecaf6080f

## Record

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

## Text

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 Unpublished rulings will not be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

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

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

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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Airs%3A1e4b28eecaf6080f. Public record. Not legal advice.