Bulletin No. 2020–26

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HIGHLIGHTS

OF THIS ISSUE

Bulletin No. 2020–26

June 22, 2020

These synopses are intended only as aids to the reader in

identifying the subject matter covered. They may not be

relied upon as authoritative interpretations.

ADMINISTRATIVE

Rev. Rul. 2020-13, page 965.

Interest rates: underpayments and overpayments. The

rates for interest determined under Section 6621 of the

code for the calendar quarter beginning July 1, 2020, will

be 3 percent for overpayments (2 percent in the case of a

corporation), 3 percent for underpayments, and 5 percent

for large corporate underpayments. The rate of interest

paid on the portion of a corporate overpayment exceeding

$10,000 will be 0.5 percent.

EMPLOYEE PLANS

Notice 2020-42, page 986.

Notice 2020-42 provides participants, beneficiaries, and

administrators of qualified retirement plans and other tax-favored retirement arrangements with temporary relief from

the physical presence requirement in § 1.401(a)-21(d)(6)

for any participant election (1) witnessed by a notary public

in a state that permits remote notarization, or (2) witnessed

by a plan representative using certain safeguards. The guidance accommodates local shutdowns and social distancing practices and is intended to facilitate the payment of

coronavirus-related distributions and plan loans to qualified

individuals, as permitted by CARES Act.

EXCISE TAX

Notice 2020-44, page 989.

Sections 4375 and 4376, added to the Code by the Affordable Care Act, impose a fee on issuers of specified

health insurance policies and plan sponsors of applicable

Finding Lists begin on page ii.

self-insured health plans to help fund the Patient-Centered

Outcomes Research Trust Fund (PCORTF). This notice addresses the recent extension of the fee by the Further Consolidated Appropriations Act, 2020, Public Law 116-94,

and provides relief for calculating the average number of

lives for policy years and plan years that end on or after

October 1, 2019, and before October 1, 2020. This notice

provides that the adjusted applicable dollar amount that

applies for determining the PCORTF fee for policy years

and plan years ending on or after October 1, 2019 and

before October 1, 2020 is equal to $2.54. This adjusted

applicable dollar amount has been determined using the

percentage increase in the projected per capita amount of

the National Health Expenditures published by HHS in February 2019.

INCOME TAX

Notice 2020-39, page 984.

This notice provides relief under section 7508A(a) of the Internal Revenue Code (Code) for qualified opportunity funds

(QOFs) and their investors in response to the ongoing Coronavirus Disease 2019 (COVID-19) pandemic. This notice

also addresses the application of certain relief provisions in

the Income Tax Regulations under section 1400Z-2 of the

Code (section 1400Z-2 regulations).

REG-109755-19, page 994.

These proposed regulations provide guidance under section 213 of the Internal Revenue Code regarding the treatment of amounts paid for certain medical care arrangements, including direct primary care arrangements, health

care sharing ministries, and certain government-sponsored

health care programs. The proposed regulations affect individuals who pay for these arrangements or programs and

want to deduct the amounts paid as medical expenses under section 213.

Rev. Proc. 2020-34, page 990.

This revenue procedure grants temporary relief to trusts

which are, or have tenants who are, experiencing financial

hardship as a result of COVID-19, to allow them to make certain modifications to their mortgage loans and their lease

agreements, and to accept additional cash contributions

without jeopardizing their tax status as grantor trusts. The

revenue procedure indicates that a cash contribution from

one or more new trust interest holders to acquire a trust interest or a non-pro rata cash contribution from one or more

current trust interest holders must be treated as a purchase

and sale under § 1001 of a portion of each non-contributing

(or lesser contributing) trust interest holder’s proportionate

interest in the trust’s assets.

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.

June 22, 2020

Bulletin No. 2020–26

Part I

Section 6621.—

Determination of Rate of

Interest

26 CFR 301.6621-1: Interest rate.

Rev. Rul. 2020-13

Section 6621 of the Internal Revenue Code establishes the interest rates

on overpayments and underpayments of

tax. Under section 6621(a)(1), the overpayment rate is the sum of the federal

short-term rate plus 3 percentage points (2

percentage points in the case of a corporation), except the rate for the portion of a

corporate overpayment of tax exceeding

$10,000 for a taxable period is the sum of

the federal short-term rate plus 0.5 of a

percentage point. Under section 6621(a)

(2), the underpayment rate is the sum of

the federal short-term rate plus 3 percentage points.

Section 6621(c) provides that for purposes of interest payable under section

6601 on any large corporate underpayment, the underpayment rate under section

6621(a)(2) is determined by substituting

“5 percentage points” for “3 percentage

points.” See section 6621(c) and section

301.6621-3 of the Regulations on Procedure and Administration for the definition

of a large corporate underpayment and

for the rules for determining the applicable date. Section 6621(c) and section

301.6621-3 are generally effective for periods after December 31, 1990.

Section 6621(b)(1) provides that the

Secretary will determine the federal short-

Bulletin No. 2020–26

term rate for the first month in each calendar quarter. Section 6621(b)(2)(A)

provides that the federal short-term rate

determined under section 6621(b)(1) for

any month applies during the first calendar

quarter beginning after that month. Section 6621(b)(3) provides that the federal

short-term rate for any month is the federal short-term rate determined during that

month by the Secretary in accordance with

section 1274(d), rounded to the nearest

full percent (or, if a multiple of 1/2 of 1

percent, the rate is increased to the next

highest full percent).

Notice 88-59, 1988-1 C.B. 546, announced that in determining the quarterly

interest rates to be used for overpayments

and underpayments of tax under section

6621, the Internal Revenue Service will

use the federal short-term rate based on

daily compounding because that rate is

most consistent with section 6621 which,

pursuant to section 6622, is subject to daily compounding.

The federal short-term rate determined

in accordance with section 1274(d) during

April 2020 is the rate published in Revenue

Ruling 2020-11, 2020-19 IRB 776, to take

effect beginning May 1, 2020. The federal

short-term rate, rounded to the nearest full

percent, based on daily compounding determined during the month of April 2020

is 0 percent. Accordingly, an overpayment

rate of 3 percent (2 percent in the case of a

corporation) and an underpayment rate of

3 percent are established for the calendar

quarter beginning July 1, 2020. The overpayment rate for the portion of a corporate

overpayment exceeding $10,000 for the

calendar quarter beginning July 1, 2020 is

965

0.5 percent. The underpayment rate for

large corporate underpayments for the calendar quarter beginning July 1, 2020, is

5 percent. These rates apply to amounts

bearing interest during that calendar quarter.

Sections 6654(a)(1) and 6655(a)(1)

provide that the underpayment rate established under section 6621 applies in determining the addition to tax under sections

6654 and 6655 for failure to pay estimated

tax for any taxable year. Thus, the 3 percent rate also applies to estimated tax underpayments for the third calendar quarter

beginning July 1, 2020. In addition, pursuant to section 6603(d)(4), the rate of interest on section 6603 deposits is 0 percent

for the third calendar quarter in 2020.

Interest factors for daily compound interest for annual rates of 0.5 percent are

published in Appendix A of this Revenue

Ruling. Interest factors for daily compound interest for annual rates of 2 percent, 3 percent and 5 percent are published

in Tables 57, 59, and 63 of Rev. Proc. 9517, 1995-1 C.B. 611, 613, and 617.

Annual interest rates to be compounded

daily pursuant to section 6622 that apply

for prior periods are set forth in the tables

accompanying this revenue ruling.

DRAFTING INFORMATION

The principal author of this revenue

ruling is Casey R. Conrad of the Office of

the Associate Chief Counsel (Procedure

and Administration). For further information regarding this revenue ruling, contact

Mr. Conrad at (202) 317-6844 (not a tollfree number).

June 22, 2020

APPENDIX A

Days

Factor

0.000013699

0.000027397

0.000041096

0.000054796

0.000068495

0.000082195

0.000095894

0.000109594

0.000123294

0.000136995

0.000150695

0.000164396

0.000178097

0.000191798

0.000205499

0.000219201

0.000232902

0.000246604

0.000260306

0.000274008

0.000287711

365 Day Year

0.5% Compound Rate 184 Days

Days

Factor

0.000863380

0.000877091

0.000890801

0.000904512

0.000918223

0.000931934

0.000945646

0.000959357

0.000973069

0.000986781

0.001000493

0.001014206

0.001027918

0.001041631

0.001055344

0.001069057

0.001082770

0.001096484

0.001110197

0.001123911

0.001137625

0.000301413

0.000315116

0.000328819

0.000342522

0.000356225

0.000369929

0.000383633

0.000397336

0.000411041

0.000424745

0.000438449

0.000452154

0.000465859

0.000479564

0.000493269

0.000506974

0.000520680

0.000534386

0.000548092

0.000561798

100

101

102

103

June 22, 2020

0.001151339

0.001165054

0.001178768

0.001192483

0.001206198

0.001219913

0.001233629

0.001247344

0.001261060

0.001274776

0.001288492

0.001302208

0.001315925

0.001329641

0.001343358

0.001357075

0.001370792

0.001384510

0.001398227

0.001411945

966

Days

125

126

127

128

129

130

131

132

133

134

135

136

137

138

139

140

141

142

143

144

145

Factor

0.001713784

0.001727506

0.001741228

0.001754951

0.001768673

0.001782396

0.001796119

0.001809843

0.001823566

0.001837290

0.001851013

0.001864737

0.001878462

0.001892186

0.001905910

0.001919635

0.001933360

0.001947085

0.001960811

0.001974536

0.001988262

146

147

148

149

150

151

152

153

154

155

156

157

158

159

160

161

162

163

164

165

0.002001988

0.002015714

0.002029440

0.002043166

0.002056893

0.002070620

0.002084347

0.002098074

0.002111801

0.002125529

0.002139257

0.002152985

0.002166713

0.002180441

0.002194169

0.002207898

0.002221627

0.002235356

0.002249085

0.002262815

Bulletin No. 2020–26

0.000575504

0.000589211

0.000602917

0.000616624

0.000630331

0.000644039

0.000657746

0.000671454

0.000685161

0.000698869

0.000712578

0.000726286

0.000739995

0.000753703

0.000767412

0.000781121

0.000794831

0.000808540

0.000822250

0.000835960

0.000849670

Bulletin No. 2020–26

104

105

106

107

108

109

110

111

112

113

114

115

116

117

118

119

120

121

122

123

124

0.001425663

0.001439381

0.001453100

0.001466818

0.001480537

0.001494256

0.001507975

0.001521694

0.001535414

0.001549133

0.001562853

0.001576573

0.001590293

0.001604014

0.001617734

0.001631455

0.001645176

0.001658897

0.001672619

0.001686340

0.001700062

967

166

167

168

169

170

171

172

173

174

175

176

177

178

179

180

181

182

183

184

0.002276544

0.002290274

0.002304004

0.002317734

0.002331465

0.002345195

0.002358926

0.002372657

0.002386388

0.002400120

0.002413851

0.002427583

0.002441315

0.002455047

0.002468779

0.002482511

0.002496244

0.002509977

0.002523710

June 22, 2020

Days

June 22, 2020

Factor

0.000013661

0.000027323

0.000040984

0.000054646

0.000068308

0.000081970

0.000095632

0.000109295

0.000122958

0.000136620

0.000150283

0.000163947

0.000177610

0.000191274

0.000204938

0.000218602

0.000232266

0.000245930

0.000259595

0.000273260

0.000286924

0.000300590

0.000314255

0.000327920

0.000341586

0.000355252

0.000368918

0.000382584

0.000396251

0.000409917

0.000423584

0.000437251

0.000450918

0.000464586

0.000478253

0.000491921

0.000505589

0.000519257

0.000532925

0.000546594

0.000560262

0.000573931

366 Day Year

0.5% Compound Rate 184 Days

Days

Factor

0.000861020

0.000874693

0.000888366

0.000902040

0.000915713

0.000929387

0.000943061

0.000956735

0.000970409

0.000984084

0.000997758

0.001011433

0.001025108

0.001038783

0.001052459

0.001066134

0.001079810

0.001093486

0.001107162

0.001120839

0.001134515

0.001148192

0.001161869

0.001175546

0.001189223

0.001202900

0.001216578

0.001230256

0.001243934

0.001257612

0.001271291

0.001284969

0.001298648

0.001312327

0.001326006

0.001339685

0.001353365

100

0.001367044

101

0.001380724

102

0.001394404

103

0.001408085

104

0.001421765

968

Days

125

126

127

128

129

130

131

132

133

134

135

136

137

138

139

140

141

142

143

144

145

146

147

148

149

150

151

152

153

154

155

156

157

158

159

160

161

162

163

164

165

166

Factor

0.001709097

0.001722782

0.001736467

0.001750152

0.001763837

0.001777522

0.001791208

0.001804893

0.001818579

0.001832265

0.001845951

0.001859638

0.001873324

0.001887011

0.001900698

0.001914385

0.001928073

0.001941760

0.001955448

0.001969136

0.001982824

0.001996512

0.002010201

0.002023889

0.002037578

0.002051267

0.002064957

0.002078646

0.002092336

0.002106025

0.002119715

0.002133405

0.002147096

0.002160786

0.002174477

0.002188168

0.002201859

0.002215550

0.002229242

0.002242933

0.002256625

0.002270317

Bulletin No. 2020–26

0.000587600

0.000601269

0.000614939

0.000628608

0.000642278

0.000655948

0.000669618

0.000683289

0.000696959

0.000710630

0.000724301

0.000737972

0.000751643

0.000765315

0.000778986

0.000792658

0.000806330

0.000820003

0.000833675

0.000847348

Bulletin No. 2020–26

105

106

107

108

109

110

111

112

113

114

115

116

117

118

119

120

121

122

123

124

0.001435446

0.001449127

0.001462808

0.001476489

0.001490170

0.001503852

0.001517533

0.001531215

0.001544897

0.001558580

0.001572262

0.001585945

0.001599628

0.001613311

0.001626994

0.001640678

0.001654361

0.001668045

0.001681729

0.001695413

969

167

168

169

170

171

172

173

174

175

176

177

178

179

180

181

182

183

184

0.002284010

0.002297702

0.002311395

0.002325087

0.002338780

0.002352473

0.002366167

0.002379860

0.002393554

0.002407248

0.002420942

0.002434636

0.002448331

0.002462025

0.002475720

0.002489415

0.002503110

0.002516806

June 22, 2020

TABLE OF INTEREST RATES

PERIODS BEFORE JUL. 1, 1975 - PERIODS ENDING DEC. 31, 1986

OVERPAYMENTS AND UNDERPAYMENTS

PERIOD

Before

Jul.

Feb.

Jan.

Jul.

Jan.

Jul.

Jan.

Jul.

Jan.

Jul.

1975–Jan.

1976–Jan.

1978–Jan.

1980–Jan.

1982–Dec.

1983–Jun.

1983–Dec.

1984–Jun.

1984–Dec.

1985–Jun.

1985–Dec.

1986–Jun.

1986–Dec.

RATE

31,

30,

31,

30,

31,

30,

31,

30,

31,

1975

1976

1978

1980

1982

1983

1984

1985

1986

12%

20%

16%

11%

13%

11%

10%

Table

In 1995-1 C.B.

DAILY RATE TABLE

pg.

37,

pg.

27,

pg.

75,

pg.

75,

pg.

31,

pg.

27,

pg.

25,

pg.

23,

pg.

557

559

558

557

560

591

581

629

585

581

579

577

TABLE OF INTEREST RATES

FROM JAN. 1, 1987 - Dec. 31, 1998

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

June 22, 2020

1987–Mar.

1987–Jun.

1987–Sep.

1987–Dec.

1988–Mar.

1988–Jun.

1988–Sep.

1988–Dec.

1989–Mar.

1989–Jun.

1989–Sep.

1989–Dec.

1990–Mar.

1990–Jun.

1990–Sep.

31,

30,

31,

30,

31,

30,

31,

30,

1987

1988

1989

1990

RATE

10%

11%

10%

970

OVERPAYMENTS

1995-1 C.B.

TABLE

575

577

627

625

627

579

581

579

UNDERPAYMENTS

1995-1 C.B. RATE

RATE

TABLE

577

10%

579

11%

629

10%

627

10%

627

11%

629

11%

581

12%

583

12%

583

11%

581

11%

581

11%

581

11%

581

Bulletin No. 2020–26

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

1990–Dec.

1991–Mar.

1991–Jun.

1991–Sep.

1991–Dec.

1992–Mar.

1992–Jun.

1992–Sep.

1992–Dec.

1993–Mar.

1993–Jun.

1993–Sep.

1993–Dec.

1994–Mar.

1994–Jun.

1994–Sep.

1994–Dec.

1995–Mar.

1995–Jun.

1995–Sep.

1995–Dec.

1996–Mar.

1996–Jun.

1996–Sep.

1996–Dec.

1997–Mar.

1997–Jun.

1997–Sep.

1997–Dec.

1998–Mar.

1998–Jun.

1998–Sep.

1998–Dec.

Bulletin No. 2020–26

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

1990

1991

1992

1993

1994

1995

1996

1997

1998

10%

971

579

577

623

621

619

571

573

575

577

575

623

621

623

575

573

11%

10%

581

579

625

623

621

573

575

577

579

577

625

623

625

577

575

June 22, 2020

TABLE OF INTEREST RATES

FROM JANUARY 1, 1999 - PRESENT

NONCORPORATE OVERPAYMENTS AND UNDERPAYMENTS

1995-1 C.B.

RATE

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

June 22, 2020

1999–Mar.

1999–Jun.

1999–Sep.

1999–Dec.

2000–Mar.

2000–Jun.

2000–Sep.

2000–Dec.

2001–Mar.

2001–Jun.

2001–Sep.

2001–Dec.

2002–Mar.

2002–Jun.

2002–Sep.

2002–Dec.

2003–Mar.

2003–Jun.

2003–Sep.

2003–Dec.

2004–Mar.

2004–Jun.

2004–Sep.

2004–Dec.

2005–Mar.

2005–Jun.

2005–Sep.

2005–Dec.

2006–Mar.

2006–Jun.

2006–Sep.

2006–Dec.

2007–Mar.

2007–Jun.

2007–Sep.

2007–Dec.

2008–Mar.

2008–Jun.

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

972

RATE

TABLE

1995-1 C.B.

TABLE

PAGE

573

575

623

625

577

575

573

571

569

567

615

617

615

617

569

571

573

575

621

619

Bulletin No. 2020–26

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Bulletin No. 2020–26

2008–Sep.

2008–Dec.

2009–Mar.

2009–Jun.

2009–Sep.

2009–Dec.

2010–Mar.

2010–Jun.

2010–Sep.

2010–Dec.

2011–Mar.

2011–Jun.

2011–Sep.

2011–Dec.

2012–Mar.

2012–Jun.

2012–Sep.

2012–Dec.

2013–Mar.

2013–Jun.

2013–Sep.

2013–Dec.

2014–Mar.

2014–Jun.

2014–Sep.

2014–Dec.

2015–Mar.

2015–Jun.

2015–Sep.

2015–Dec.

2016–Mar.

2016–Jun.

2016–Sep.

2016–Dec.

2017–Mar.

2017–Jun.

2017–Sep.

2017–Dec.

2018–Mar.

2018–Jun.

2018–Sep.

2018–Dec.

2019–Mar.

2019–Jun.

2019–Sep.

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

973

617

619

569

567

565

567

565

613

565

613

615

567

569

571

569

June 22, 2020

Oct.

Jan.

Apr.

Jul.

June 22, 2020

2019–Dec.

2020–Mar.

2020–Jun.

2020–Sep.

31,

30,

2019

2020

974

569

617

613

Bulletin No. 2020–26

TABLE OF INTEREST RATES

FROM JANUARY 1, 1999 - PRESENT

CORPORATE OVERPAYMENTS AND UNDERPAYMENTS

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

1999–Mar.

1999–Jun.

1999–Sep.

1999–Dec.

2000–Mar.

2000–Jun.

2000–Sep.

2000–Dec.

2001–Mar.

2001–Jun.

2001–Sep.

2001–Dec.

2002–Mar.

2002–Jun.

2002–Sep.

2002–Dec.

2003–Mar.

2003–Jun.

2003–Sep.

2003–Dec.

2004–Mar.

2004–Jun.

2004–Sep.

2004–Dec.

2005–Mar.

2005–Jun.

2005–Sep.

2005–Dec.

2006–Mar.

2006–Jun.

2006–Sep.

2006–Dec.

2007–Mar.

2007–Jun.

2007–Sep.

2007–Dec.

2008–Mar.

2008–Jun.

2008–Sep.

Bulletin No. 2020–26

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

OVERPAYMENTS

1995-1 C.B.

RATE

TABLE

571

573

621

623

575

573

571

569

567

565

613

615

613

615

567

569

571

573

619

617

615

975

UNDERPAYMENTS

1995-1 C.B.

RATE

TABLE

573

575

623

625

577

575

573

571

569

567

615

617

615

617

569

571

573

575

621

619

617

June 22, 2020

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

1,z

June 22, 2020

2008–Dec.

2009–Mar.

2009–Jun.

2009–Sep.

2009–Dec.

2010–Mar.

2010–Jun.

2010–Sep.

2010–Dec.

2011–Mar.

2011–Jun.

2011–Sep.

2011–Dec.

2012–Mar.

2012–Jun.

2012–Sep.

2012–Dec.

2013–Mar.

2013–Jun.

2013–Sep.

2013–Dec.

2014–Mar.

2014–Jun.

2014–Sep.

2014–Dec.

2015–Mar.

2015–Jun.

2015–Sep.

2015–Dec.

2016–Mar.

2016–Jun.

2016–Sep.

2016–Dec.

2017–Mar.

2017–Jun.

2017–Sep.

2017–Dec.

2018–Mar.

2018–Jun.

2018–Sep.

2018–Dec.

2019–Mar.

2019–Jun.

2019–Sep.

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,,

31,

30,

31,

30,

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

976

617

567

565

563

565

563

611

563

611

613

565

567

569

567

619

569

567

565

567

565

613

565

613

615

567

569

571

569

Bulletin No. 2020–26

Oct.

Jan.

Apr.

Jul.

2019–Dec.

2020–Mar.

2020–Jun.

2020–Sep.

Bulletin No. 2020–26

31,

30,

2019

2020

977

567

615

611

569

617

613

June 22, 2020

TABLE OF INTEREST RATES

FOR LARGE CORPORATE UNDERPAYMENTS

FROM JANUARY 1, 1991 - PRESENT

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

June 22, 2020

1991–Mar.

1991–Jun.

1991–Sep.

1991–Dec.

1992–Mar.

1992–Jun.

1992–Sep.

1992–Dec.

1993–Mar.

1993–Jun.

1993–Sep.

1993–Dec.

1994–Mar.

1994–Jun.

1994–Sep.

1994–Dec.

1995–Mar.

1995–Jun.

1995–Sep.

1995–Dec.

1996–Mar.

1996–Jun.

1996–Sep.

1996–Dec.

1997–Mar.

1997–Jun.

1997–Sep.

1997–Dec.

1998–Mar.

1998–Jun.

1998–Sep.

1998–Dec.

1999–Mar.

1999–Jun.

1999–Sep.

1999–Dec.

2000–Mar.

2000–Jun.

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

978

RATE

13%

12%

11%

10%

11%

12%

11%

10%

11%

10%

11%

1995-1 C.B.

TABLE

585

583

629

627

625

577

579

581

583

581

629

627

629

581

579

577

579

627

629

Bulletin No. 2020–26

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Bulletin No. 2020–26

2000–Sep.

2000–Dec.

2001–Mar.

2001–Jun.

2001–Sep.

2001–Dec.

2002–Mar.

2002–Jun.

2002–Sep.

2002–Dec.

2003–Mar.

2003–Jun.

2003–Sep.

2003–Dec.

2004–Mar.

2004–Jun.

2004–Sep.

2004–Dec.

2005–Mar.

2005–Jun.

2005–Sep.

2005–Dec.

2006–Mar.

2006–Jun.

2006–Sep.

2006–Dec.

2007–Mar.

2007–Jun.

2007–Sep.

2007–Dec.

2008–Mar.

2008–Jun.

2008–Sep.

2008–Dec.

2009–Mar.

2009–Jun.

2009–Sep.

2009–Dec.

2010–Mar.

2010–Jun.

2010–Sep.

2010–Dec.

2011–Mar.

2011–Jun.

2011–Sep.

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

979

11%

10%

629

581

579

577

575

573

571

619

621

619

621

573

575

577

579

625

623

621

623

573

571

569

571

June 22, 2020

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

June 22, 2020

2011–Dec.

2012–Mar.

2012–Jun.

2012–Sep.

2012–Dec.

2013–Mar.

2013–Jun.

2013–Sep.

2013–Dec.

2014–Mar.

2014–Jun.

2014–Sep.

2014–Dec.

2015–Mar.

2015–Jun.

2015–Sep.

2015–Dec.

2016–Mar.

2016–Jun.

2016–Sep.

2016–Dec.

2017–Mar.

2017–Jun.

2017–Sep.

2017–Dec.

2018–Mar.

2018–Jun.

2018–Sep.

2018–Dec.

2019–Mar.

2019–Jun.

2019–Sep.

2019–Dec.

2020–Mar.

2020–Jun.

2020–Sep.

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

980

569

617

569

617

619

571

573

575

573

621

617

Bulletin No. 2020–26

TABLE OF INTEREST RATES FOR CORPORATE

OVERPAYMENTS EXCEEDING $10,000

FROM JANUARY 1, 1995 – PRESENT

1995-1 C.B.

RATE

TABLE

Jan.

1995–Mar.

31,

1995

6.5%

572

Apr.

1995–Jun.

30,

1995

7.5%

574

Jul.

1995–Sep.

30,

1995

6.5%

572

Oct.

1995–Dec.

31,

1995

6.5%

572

Jan.

1996–Mar.

31,

1996

6.5%

620

Apr.

1996–Jun.

30,

1996

5.5%

618

Jul.

1996–Sep.

30,

1996

6.5%

620

Oct.

1996–Dec.

31,

1996

6.5%

620

Jan.

1997–Mar.

31,

1997

6.5%

572

Apr.

1997–Jun.

30,

1997

6.5%

572

Jul.

1997–Sep.

30,

1997

6.5%

572

Oct.

1997–Dec.

31,

1997

6.5%

572

Jan.

1998–Mar.

31,

1998

6.5%

572

Apr.

1998–Jun.

30,

1998

5.5%

570

Jul.

1998–Sep.

30,

1998

5.5%

570

Oct.

1998–Dec.

31,

1998

5.5%

570

Jan.

1999–Mar.

31,

1999

4.5%

568

Apr.

1999–Jun.

30,

1999

5.5%

570

Jul.

1999–Sep.

30,

1999

5.5%

570

Oct.

1999–Dec.

31,

1999

5.5%

570

Jan.

2000–Mar.

31,

2000

5.5%

618

Apr.

2000–Jun.

30,

2000

6.5%

620

Jul.

2000–Sep.

30,

2000

6.5%

620

Oct.

2000–Dec.

31,

2000

6.5%

620

Jan.

2001–Mar.

31,

2001

6.5%

572

Apr.

2001–Jun.

30,

2001

5.5%

570

Jul.

2001–Sep.

30,

2001

4.5%

568

Oct.

2001–Dec.

31,

2001

4.5%

568

Jan.

2002–Mar.

31,

2002

3.5%

566

Apr.

2002–Jun.

30,

2002

3.5%

566

Jul.

2002–Sep.

30,

2002

3.5%

566

Oct.

2002–Dec.

31,

2002

3.5%

566

Jan.

2003–Mar.

31,

2003

2.5%

564

Apr.

2003–Jun.

30,

2003

2.5%

564

Jul.

2003–Sep.

30,

2003

2.5%

564

Oct.

2003–Dec.

31,

2003

1.5%

562

Jan.

2004–Mar.

31,

2004

1.5%

610

Apr.

2004–Jun.

30,

2004

2.5%

612

Bulletin No. 2020–26

981

June 22, 2020

Jul.

2004–Sep.

30,

2004

1.5%

610

Oct.

2004–Dec.

31,

2004

2.5%

612

Jan.

2005–Mar.

31,

2005

2.5%

564

Apr.

2005–Jun.

30,

2005

3.5%

566

Jul.

2005–Sep.

30,

2005

3.5%

566

Oct.

2005–Dec.

31,

2005

4.5%

568

Jan.

2006–Mar.

31,

2006

4.5%

568

Apr.

2006–Jun.

30,

2006

4.5%

568

Jul.

2006–Sep.

30,

2006

5.5%

570

Oct.

2006–Dec.

31,

2006

5.5%

570

Jan.

2007–Mar.

31,

2007

5.5%

570

Apr.

2007–Jun.

30,

2007

5.5%

570

Jul.

2007–Sep.

30,

2007

5.5%

570

Oct.

2007–Dec.

31,

2007

5.5%

570

Jan.

2008–Mar.

31,

2008

4.5%

616

Apr.

2008–Jun.

30,

2008

3.5%

614

Jul.

2008–Sep.

30,

2008

2.5%

612

Oct.

2008–Dec.

31,

2008

3.5%

614

Jan.

2009–Mar.

31,

2009

2.5%

564

Apr.

2009–Jun.

30,

2009

1.5%

562

Jul.

2009–Sep.

30,

2009

1.5%

562

Oct.

2009–Dec.

31,

2009

1.5%

562

Jan.

2010–Mar.

31,

2010

1.5%

562

Apr.

2010–Jun.

30,

2010

1.5%

562

Jul.

2010–Sep.

30,

2010

1.5%

562

Oct.

2010–Dec.

31,

2010

1.5%

562

Jan.

2011–Mar.

31,

2011

0.5%*

Apr.

2011–Jun.

30,

2011

1.5%

562

Jul.

2011–Sep.

30,

2011

1.5%

562

Oct.

2011–Dec.

31,

2011

0.5%*

Jan.

2012–Mar.

31,

2012

0.5%*

Apr.

2012–Jun.

30,

2012

0.5%*

Jul.

2012–Sep.

30,

2012

0.5%*

Oct.

2012–Dec.

31,

2012

0.5%*

Jan.

2013–Mar.

31,

2013

0.5%*

Apr.

2013–Jun.

30,

2013

0.5%*

Jul.

2013–Sep.

30,

2013

0.5%*

Oct.

2013–Dec.

31,

2013

0.5%*

Jan.

2014–Mar.

31,

2014

0.5%*

Apr.

2014–Jun.

30,

2014

0.5%*

Jul.

2014–Sep.

30,

2014

0.5%*

June 22, 2020

982

Bulletin No. 2020–26

Oct.

2014–Dec.

31,

2014

0.5%*

Jan.

2015–Mar.

31,

2015

0.5%*

Apr.

2015–Jun.

30,

2015

0.5%*

Jul.

2015–Sep.

30,

2015

0.5%*

Oct.

2015–Dec.

31,

2015

0.5%*

Jan.

2016–Mar.

31,

2016

0.5%*

Apr.

2016–Jun.

30,

2016

1.5%

610

Jul.

2016–Sep.

30,

2016

1.5%

610

Oct.

2016–Dec.

31,

2016

1.5%

610

Jan.

2017–Mar.

31,

2017

1.5%

562

Apr.

2017–Jun.

30,

2017

1.5%

562

Jul.

2017–Sep.

30,

2017

1.5%

562

Oct.

2017–Dec.

31,

2017

1.5%

562

Jan.

2018–Mar.

31,

2018

1.5%

562

Apr.

2018–Jun.

30,

2018

2.5%

564

Jul.

2018–Sep.

30,

2018

2.5%

564

Oct.

2018–Dec.

31,

2018

2.5%

564

Jan.

2019–Mar.

31,

2019

3.5%

566

Apr.

2019–Jun.

30,

2019

3.5%

566

Jul.

2019–Sep.

30,

2019

2.5%

564

Oct.

2019–Dec.

31,

2019

2.5%

564

Jan.

2020–Mar.

31,

2020

2.5%

612

Apr.

2020–Jun.

30,

2020

2.5%

612

Jul.

2020–Sep.

30,

2020

0.5%*

* The asterisk reflects the interest factors for daily compound interest for annual rates of 0.5 percent published in Appendix A of

this Revenue Ruling.

Bulletin No. 2020–26

983

June 22, 2020

Part III

Relief for Qualified

Opportunity Funds and

Investors Affected by

Ongoing Coronavirus

Disease 2019 Pandemic

Notice 2020-39

I. PURPOSE

This notice provides relief under section 7508A(a) of the Internal Revenue

Code (Code) for qualified opportunity

funds (QOFs) and their investors in response to the ongoing Coronavirus Disease 2019 (COVID-19) pandemic. This

notice also addresses the application of

certain relief provisions in the Income

Tax Regulations under section 1400Z-2 of

the Code (section 1400Z‑2 regulations).

Part III of this notice (i) provides relief

for certain failures by a QOF to meet the

90-percent investment standard and (ii)

postpones the time periods for satisfying

certain other requirements. Part IV of this

notice confirms that (i) the 24-month extension for the working capital safe harbor

and (ii) the 12-month extension for QOFs

to reinvest certain proceeds, both as provided under the section 1400Z-2 regulations, are available to otherwise qualifying QOFs and qualified opportunity zone

businesses.

II. BACKGROUND

A. Emergency Declaration and Prior

Grants of Relief

On March 13, 2020, the President of

the United States issued an emergency

declaration under the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act) (42 U.S.C.

5121 et seq.) in response to the ongoing

COVID-19 pandemic (Emergency Declaration1). The Emergency Declaration instructed the Secretary of the Treasury “to

provide relief from tax deadlines to Americans who have been adversely affected by

the COVID-19 emergency, as appropriate,

pursuant to 26 U.S.C. 7508A(a).” Subsequent to the Emergency Declaration, the

President issued major disaster declarations under the authority of the Stafford

Act with respect to all 50 states, the District of Columbia, and 5 territories (Major

Disaster Declarations).2 The Major Disaster Declarations declared that, beginning

on January 20, 2020, major disasters existed in each of these jurisdictions, within

which is located every population census

tract designated as a qualified opportunity

zone under section 1400Z-1 of the Code.

See Notice 2018-48, 2018-28 I.R.B. 9

(Nov. 21, 2018), and Notice 2019-42,

2019-29 I.R.B. 352 (October 10, 2019)

(which collectively list every designated

qualified opportunity zone).

Section 7508A provides the Secretary

of the Treasury or his delegate (Secretary) with authority to postpone the time

for performing certain acts under the internal revenue laws for a taxpayer determined by the Secretary to be affected by

a Federally declared disaster, as defined in

section 165(i)(5)(A) of the Code. See section 165(i)(5)(A) (defining “Federally declared disaster” to mean “any disaster subsequently determined by the President of

the United States to warrant assistance by

the Federal Government under the Robert

T. Stafford Disaster Relief and Emergency Assistance Act”). Pursuant to section

7508A(a), a period of up to one year may

be disregarded in determining whether the

performance of certain acts is timely under the internal revenue laws.

On April 9, 2020, the Department of

the Treasury and the Internal Revenue

Service issued Notice 2020-23 to provide

relief under section 7508A(a) to taxpayers

affected by the COVID-19 emergency by

postponing due dates with respect to certain taxpayer and government acts. See

generally Part III of Notice 2020-23 (providing relief for certain time-sensitive actions due to be performed on or after April

1, 2020, and before July 15, 2020), amplifying Notice 2020-20, 2020-16 I.R.B.

660 (April 13, 2020) and Notice 2020-18,

2020-15 I.R.B. 590 (April 6, 2020), and

modifying Rev. Proc. 2014-42, 2014-29

I.R.B. 192 (July 1, 2014).

B. 180-Day Investment Requirement

for QOF Investors

Section 1400Z-2(a)(1)(A) provides

that, if a taxpayer has “gain from the sale

to, or exchange with, an unrelated person

of any property held by the taxpayer” the

taxpayer may elect to exclude from gross

income for the taxable year “so much of

such gain as does not exceed the aggregate amount invested by the taxpayer in a

[QOF] during the 180-day period beginning on the date of such sale or exchange”

(180-day investment requirement). Section 1.1400Z2(a)-1 provides definitions

and rules to implement the 180-day investment requirement.

One of the time-sensitive acts postponed by Notice 2020-23 was the making

of “an investment at the election of a taxpayer due to be made during the 180-day

period described in section 1400Z-2(a)

(1)(A) of the Code” (180-day investment

period). See Notice 2020-23, Part III.A

and C. Specifically, Notice 2020-23 postponed to July 15, 2020, any deadline for

the 180-day investment requirement that

otherwise would have occurred on or after

April 1, 2020 and before July 15, 2020.

See id., Part III.C.

C. 90-Percent Investment Standard for

QOFs

Section 1400Z-2(d)(1) defines a QOF

as any investment vehicle organized as a

corporation or a partnership for the purpose of investing in qualified opportunity

zone property (other than another QOF).

This definition also requires a QOF to

hold at least 90 percent of its assets in

qualified opportunity zone property, determined by the average of the percentage

See March 13, 2020, letter from the President to Secretaries of the Departments of Homeland Security, the Treasury, and Health and Human Services and the Administrator of the Federal

Emergency Management Agency, available at https://www.whitehouse.gov/wp-content/uploads/2020/03/LetterFromThePresident.pdf.

See https://www.fema.gov/coronavirus/disaster-declarations.

June 22, 2020

984

Bulletin No. 2020–26

of qualified opportunity zone property

held by that QOF as measured (i) on the

last day of the first 6-month period of the

taxable year of the QOF, and (ii) on the

last day of the taxable year of the QOF.

See section 1400Z-2(d)(1). The requirement that the average percentages of the

QOF’s qualified opportunity zone property on these two dates (semi-annual testing

dates) must equal at least 90 percent of the

QOF’s assets is referred to as the 90-percent investment standard. See section

1400Z-2(f). Section 1.1400Z2(d)-1 provides definitions and rules to implement

the 90-percent investment standard.

If the average of the percentages of

the qualified opportunity zone property held by a QOF on these semi-annual

testing dates fails to meet the 90-percent

investment standard, section 1400Z-2(f)

(1) provides a general rule that the QOF

must pay a penalty for each month that the

QOF fails to meet that standard. However, section 1400Z-2(f)(3) provides that no

such penalty is imposed “with respect to

any failure if it is shown that such failure

is due to reasonable cause.”

D. Working Capital Safe Harbor for

Qualified Opportunity Zone Businesses

An entity must meet certain requirements to be a qualified opportunity zone

business, including the requirement of

section 1397C(b)(8) that less than 5 percent of the average of the aggregate unadjusted bases of the entity’s property

be attributable to nonqualified financial

property, as defined in section 1397C(e).

Section 1397C(e) excludes from nonqualified financial property reasonable

amounts of working capital that are held

in cash, cash equivalents, or debt instruments with a term of 18 months or less.

See § 1.1400Z2(d)-1(d)(3)(iv).

The section 1400Z-2 regulations provide qualified opportunity zone businesses with a safe harbor for treating an

amount of working capital as reasonable

for purposes of section 1397C(e) if certain

requirements are satisfied (working capital safe harbor). See § 1.1400Z2(d)-1(d)

(3)(v) (providing the scope of the working capital safe harbor and conditions for

eligibility). One of those requirements is

that there is a written schedule consistent

with the ordinary start-up of a trade or

Bulletin No. 2020–26

business for the expenditure of the working capital assets within 31 months of the

receipt by the business of the assets. See

§ 1.1400Z2(d)-1(d)(3)(v)(B). A qualified

opportunity zone business may extend

the working capital safe harbor period

to a maximum 62-month period under

§ 1.1400Z2(d)-1(d)(3)(vi) if certain additional requirements are met.

If such qualified opportunity zone business is located in a qualified opportunity

zone within a Federally declared disaster (as defined in section 165(i)(5)(A)),

the qualified opportunity zone business

may receive not more than an additional

24 months to expend its working capital

assets, as long as the qualified opportunity zone business otherwise meets the

requirements of the working capital safe

harbor. See § 1.1400Z2(d)-1(d)(3)(v)(D).

Therefore, a qualified opportunity zone

business may, if each applicable requirement of § 1.1400Z2(d)-1(d)(3)(v) and

(vi) is satisfied, have up to a maximum

86-months to expend working capital assets if the qualified opportunity zone business is located in a qualified opportunity

zone within a Federally declared disaster.

E. 30-Month Substantial Improvement

Period for QOFs

Section 1400Z-2(d)(2)(D)(i) provides

that tangible property is treated as qualified opportunity zone business property if the tangible property is used in a

trade or business of the QOF and satisfies

three general requirements. One of these

requirements is that the original use of

post-2017 acquired tangible property

in the qualified opportunity zone must

begin with the QOF (referred to as the

“original use requirement”), or the QOF

must substantially improve that property

(substantial improvement requirement).

See section 1400Z-2(d)(2)(D)(i)(II). The

substantial improvement requirement is

met only if, during any 30-month period

beginning after the date of acquisition of

the post-2017 acquired tangible property,

there are “additions to basis with respect

to such property” held by the QOF that,

in the aggregate, exceed the QOF’s adjusted basis of that property as of the beginning of that 30-month period (30-month

substantial improvement period). See

section

1400Z-2(d)(2)(D)(ii).

Sec-

985

tion 1.1400Z2(d)-2(b)(4) provides rules

to implement the substantial improvement

requirement.

F. 12-Month Reinvestment Period for

QOFs

The section 1400Z-2 regulations provide generally that, if (i) a QOF sells or

disposes of some or all of its qualified opportunity zone property or if a distribution

with respect to the QOF’s qualified opportunity zone stock is treated as a return of

capital in the QOF’s hands, and if (ii) the

QOF reinvests some or all of the proceeds

in qualified opportunity zone property by

the last day of the 12-month period beginning on the date of the distribution,

sale, or disposition, then the proceeds, to

the extent that they are so reinvested, are

treated as qualified opportunity zone property for purposes of the 90-percent investment standard. See § 1.1400Z2(f)-1(b)(1).

This treatment is available to a QOF only

to the extent that, prior to the reinvestment

in qualified opportunity zone property, the

reinvested proceeds are continuously held

in cash, cash equivalents, or debt instruments with a term of 18 months or less.

See id.

If the QOF’s plan to reinvest some or all

of the above-described proceeds in qualified opportunity zone property is delayed

due to a Federally declared disaster (as

defined in section 165(i)(5)(A)), the QOF

may receive not more than an additional

12 months to reinvest the proceeds, provided that the QOF invests the proceeds in

the manner originally intended before the

disaster. See § 1.1400Z2(f)-1(b)(2).

III. GRANTS OF RELIEF FOR QOF

INVESTORS AND QOFS

A. 180-Day Investment Requirement

for QOF Investors

If the last day of the 180-day investment period within which a taxpayer must

make an investment in a QOF in order to

satisfy the 180-day investment requirement falls on or after April 1, 2020, and

before December 31, 2020, the last day

of that 180-day investment period is postponed to December 31, 2020. This relief

is automatic; taxpayers do not have to call

the IRS or send letters or other documents

June 22, 2020

to the IRS to receive this relief. However,

a taxpayer will still need to make a valid

deferral election in accordance with the

instructions to Form 8949, complete Form

8997, and file the completed Form 8949

and Form 8997 with a timely filed Federal

income tax return (including extensions)

or amended Federal income tax return for

the taxable year in which the gain would

be recognized if section 1400Z-2(a)(1) did

not apply to defer recognition of the gain.

For additional information, see https://

www.irs.gov/form8949https://www.irs.

gov/form8997.

ginning on April 1, 2020, and ending on

December 31, 2020, is disregarded in determining any 30-month substantial improvement period (that is, the 30-month

substantial improvement period is tolled

during the period beginning on April

1, 2020, and ending on December 31,

2020).

B. 90-Percent Investment Standard for

QOFs

A. Working Capital Safe Harbor for

Qualified Opportunity Zone Businesses

In the case of a QOF whose (i) last day

of the first 6-month period of the taxable

year or (ii) last day of the taxable year

falls within the period beginning on April

1, 2020, and ending on December 31,

2020, any failure by that QOF to satisfy

the 90-percent investment standard for

that taxable year of the QOF is—

(1) due to reasonable cause under section 1400Z-2(f)(3); and

(2) disregarded for purposes of determining whether the QOF or any otherwise

qualifying investments in that QOF satisfy

the requirements of section 1400Z-2 and

the section 1400Z-2 regulations for any

taxable year of the QOF.

This relief is automatic; QOFs do not

have to call the IRS or send letters or other documents to the IRS to receive this

relief. However, a QOF must accurately

complete all lines on Form 8996 filed with

respect to each affected taxable year EXCEPT that the QOF should place a “0” in

Part IV, Line 8 (Penalty). The accurately

completed Form 8996 must be filed with

the QOF’s timely filed Federal income

tax return (including extensions) for the

affected taxable year(s). For additional information, see https://www.irs.gov/

form8996

As a result of the Emergency Declaration (that is, the declaration of a Federally

declared disaster for purposes of section

165(i)(5)(A)), all qualified opportunity

zone businesses holding working capital

assets intended to be covered by the working capital safe harbor before December

31, 2020, receive not more than an additional 24 months to expend the working

capital assets of the qualified opportunity

zone business, as long as the qualified opportunity zone business otherwise meets

the requirements of § 1.1400Z2(d)-1(d)

(3)(v) (that is, the requirements to qualify

for the working capital safe harbor). See

§ 1.1400Z2(d)-1(d)(3)(v)(D) (providing

such 24-month extension due to a Federally declared disaster).

C. 30-Month Substantial Improvement

Period for QOFs and Qualified

Opportunity Zone Businesses

For purposes of the substantial improvement requirement with respect to

property held by a QOF or qualified opportunity zone business, the period be-

June 22, 2020

IV. REGULATORY EXTENSIONS FOR

WORKING CAPITAL SAFE HARBOR

AND QOF REINVESTMENT PERIOD

DUE TO FEDERALLY DECLARED

DISASTERS

B. 12-Month Reinvestment Period for

QOFs

If any QOF’s 12-month reinvestment

period includes January 20, 2020 (that is,

the date of the disaster identified in the

Major Disaster Declarations), that QOF

receives up to an additional 12 months

to reinvest in qualified opportunity zone

property some or all of the proceeds received by the QOF from the return of capital or the sale or disposition of some or all

of the QOF’s qualified opportunity zone

property, provided that the QOF satisfies

the requirements of § 1.1400Z2(f)-1(b)

(1) and invests the proceeds in the manner originally intended before January 20,

2020. See § 1.1400Z2(f)-1(b)(2) (providing such 12-month extension due to a Federally declared disaster).

986

V. EFFECT ON OTHER DOCUMENTS

Notice 2020-23 is modified.

VI. DRAFTING INFORMATION

The principal author of this notice is

Kyle C. Griffin of the Office of Associate

Chief Counsel (Income Tax and Accounting). For further information regarding this

notice, you may call the COVID-19 Disaster Relief Hotline at (202) 317-5436 (not a

toll-free number). For further information

regarding the application of this notice to

section 1400Z-2 and the section 1400Z-2

regulations, please contact Mr. Griffin at

(202) 317-4718 (not a toll-free number).

Temporary Relief from

the Physical Presence

Requirement for Spousal

Consents Under Qualified

Retirement Plans

Notice 2020-42

I. PURPOSE

In response to the unprecedented public

health emergency caused by the Coronavirus Disease 2019 (COVID-19) pandemic,

and the related social distancing that has

been implemented, this notice provides

temporary relief from the physical presence requirement in Treasury Regulations

§ 1.401(a)-21(d)(6) for participant elections required to be witnessed by a plan

representative or a notary public, including a spousal consent required under §

417 of the Internal Revenue Code (Code).

While this temporary relief, which covers

the period from January 1, 2020, through

December 31, 2020, is intended to facilitate the payment of coronavirus-related

distributions and plan loans to qualified individuals, as permitted by section 2202 of

the Coronavirus Aid, Relief, and Economic Security Act, Pub. L. 116-136, 134 Stat.

281 (2020) (CARES Act), the temporary

relief applies to any participant election

that requires the signature of an individual

to be witnessed in the physical presence of

a plan representative or notary.

Bulletin No. 2020–26

II. BACKGROUND

On March 13, 2020, the President determined that the COVID-19 pandemic

was of sufficient severity and magnitude

to warrant an emergency determination

under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, 42

U.S.C. 5121-5207. Providing alternative

procedures for notarization and consent

related to plan distributions that do not

require physical presence is an appropriate emergency protective measure

during this declared emergency period

and is consistent with the physical distancing procedures implemented by the

states.

As part of the response to the COVID-19

pandemic, Congress passed the CARES

Act to allow participants greater access to

their retirement benefits. Section 2202(a)

of the CARES Act permits certain individuals to receive up to $100,000 for

a coronavirus-related distribution from

an eligible retirement plan (as defined in

§ 402(c)(8)(B) of the Code). A coronavirus-related distribution is defined as any

distribution from an eligible retirement

plan to a qualified individual made on or

after January 1, 2020, and before December 31, 2020. A distribution is not subject

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

the extent it meets the requirements of a

coronavirus-related distribution. In addition, the coronavirus-related distribution

may be included in gross income ratably

over the 3-year period beginning with the

taxable year of the distribution and may

be recontributed to an applicable eligible

retirement plan in which the taxpayer is a

beneficiary and to which a rollover can be

made.

Section 2202(b)(1) of the CARES Act

provides that in the case of any loan from

a qualified employer plan (as defined under § 72(p)(4) of the Code) to a qualified

individual made during the 180-day period beginning on the date of enactment of

the CARES Act, the $50,000 aggregate

loan limit in § 72(p)(2)(A)(i) of the Code

is increased to $100,000. In addition, the

rule in § 72(p)(2)(A)(ii) limiting the aggregate amount of the loans to one-half

of the present value of the vested accrued

benefit of the employee is increased to 100

percent of the employee’s vested accrued

benefit under the plan.

Section 1.401(a)-21 sets forth standards for the use of an electronic medium

to provide applicable notices to recipients

or to make participant elections with respect to a retirement plan, an employee

benefit arrangement, or an individual

retirement plan. Section 1.401(a)-21(e)

(6) defines a participant election as any

consent, election, request, agreement, or

similar communication made by or from

a participant, beneficiary, alternate payee, or an individual entitled to benefits

under a retirement plan, employee benefit arrangement, or individual retirement

plan. Section 1.401(a)-21(d) sets forth the

following conditions for participant elections:

(1) The individual must be effectively

able to access the electronic medium used

to make the participant election;

(2) The electronic system must be reasonably designed to preclude any person

other than the appropriate individual from

making the participant election;

(3) The electronic system must provide the individual making the participant

election with a reasonable opportunity to

review, confirm, modify, or rescind the

terms of the election before it becomes

effective; and

(4) The individual making the participant election, within a reasonable time,

must receive confirmation of the election

through either a written paper document

or an electronic medium under a system

that satisfies the applicable notice requirements under § 1.401(a)-21.

The participant election rules in

§ 1.401(a)-21(d) apply to plans that are

subject to the qualified joint and survivor (QJSA) requirements of § 417. Accordingly, for a plan subject to the QJSA

requirements, a participant’s consent to

a distribution may be provided through

the use of electronic media if the plan

complies with the standards described in

§ 1.401(a)-21(d), provided that the participant also obtains a valid spousal consent,

if applicable.

Section 417 requires spousal consent to

a waiver of a QJSA, which includes the

waiver of a QJSA as part of a request for

a plan distribution or a plan loan. Section

417 further requires that the spousal consent be witnessed by a plan representative

or a notary public. Section 1.401(a)-21(d)

(6)(i) provides that, in the case of a participant election that is required to be

witnessed by a plan representative or a

notary public (such as a spousal consent

to a waiver of a QJSA under § 417), the

signature of the individual making the

participant election must be witnessed in

the physical presence of a plan representative or a notary public. Section 1.401(a)21(d)(6)(ii) provides that, if the signature

is witnessed in the physical presence of a

notary public, an electronic signature acknowledging the signature (in accordance

with section 101(g) of the Electronic Signatures in Global and National Commerce

Act, Pub. L. 106-229, 114 Stat. 464 (2000)

(E-SIGN),1 and applicable state law for

notaries public) will not be denied legal

effect.

Section 1.401(a)-21(d)(6)(iii) provides

that the Commissioner may provide in

guidance published in the Internal Revenue Bulletin that the use of procedures

under an electronic system is deemed to

satisfy the physical presence requirement,

but only if those procedures with respect

to the electronic system provide the same

safeguards for participant elections as are

provided through the physical presence

requirement.

Section 1.401(a)-21(d) permits electronic notarization of participant elections. However, the physical presence

requirement in § 1.401(a)-21(d)(6) would

preclude the use of remote notarizations

of participant elections, including spousal

consents.

Remote electronic notarizations differ

from electronic notarizations in that remote electronic notarizations generally

are conducted remotely over the internet

using digital tools and live audio-video

technologies, whereas electronic notarizations can be signed electronically but

still require that certain signatures be

witnessed in the physical presence of a

Section 101(g) of E-SIGN provides that “[i]f a statute, regulation, or other rule of law requires a signature or record relating to a transaction in or affecting interstate or foreign commerce

to be notarized, acknowledged, verified, or made under oath, that requirement is satisfied if the electronic signature of the person authorized to perform those acts, together with all other

information required to be included by other applicable statute, regulation, or rule of law, is attached to or logically associated with the signature or record.”

Bulletin No. 2020–26

987

June 22, 2020

notary public or plan representative. The

Department of the Treasury and the Internal Revenue Service have received several requests from stakeholders to permit

remote electronic notarization of spousal

consents for plan loans and distributions

during the COVID-19 pandemic. These

stakeholders state that due to the social

distancing measures with respect to the

COVID-19 pandemic, the physical presence requirement in § 1.401(a)-21(d)(6)

makes it difficult, if not impossible, for a

participant to receive a plan distribution

or plan loan (or for a qualified individual

to receive a coronavirus-related distribution or plan loan) for which spousal

consent is required. While recognizing

the need for relief, one stakeholder requested that any relief take into account

spousal protections, including limiting

the relief solely to the physical presence

requirement and making the relief temporary.

Remote electronic notarization is not

uniformly applied by the states. In the

majority of states, remote electronic notarization is either permanently or temporarily permitted by law, but in some states

remote electronic notarization is not currently permitted.

III. GRANT OF RELIEF

For the period from January 1, 2020,

through December 31, 2020, if the related requirements in subsection A or B of

this Section III are satisfied, this notice

provides the following temporary relief

from the physical presence requirement in

§ 1.401(a)-21(d)(6):

(1) temporary relief from the physical

presence requirement for any participant

election witnessed by a notary public of a

state that permits remote electronic notarization, and

(2) temporary relief from the physical

presence requirement for any participant

election witnessed by a plan representative.

A. Temporary Relief from the Physical

Presence Requirement for any

Participant Election Witnessed by a

Notary Public

In the case of a participant election

witnessed by a notary public, for the pe-

June 22, 2020

riod from January 1, 2020, through December 31, 2020, the physical presence

requirement in § 1.401(a)-21(d)(6) is

deemed satisfied for an electronic system

that uses remote notarization if executed via live audio-video technology that

otherwise satisfies the requirements of

participant elections under § 1.401(a)21(d)(6) and is consistent with state law

requirements that apply to the notary

public.

B. Temporary Relief from the Physical

Presence Requirement for any

Participant Election Witnessed by a

Plan Representative

In the case of a participant election

witnessed by a plan representative, for

the period from January 1, 2020, through

December 31, 2020, the physical presence requirement in § 1.401(a)-21(d)(6)

is deemed satisfied for an electronic system if the electronic system using live audio-video technology satisfies the following requirements:

(1) The individual signing the participant election must present a valid photo

ID to the plan representative during the

live audio-video conference, and may not

merely transmit a copy of the photo ID

prior to or after the witnessing;

(2) The live audio-video conference

must allow for direct interaction between

the individual and the plan representative

(for example, a pre-recorded video of the

person signing is not sufficient);

(3) The individual must transmit by fax

or electronic means a legible copy of the

signed document directly to the plan representative on the same date it was signed;

and

(4) After receiving the signed document, the plan representative must acknowledge that the signature has been

witnessed by the plan representative in

accordance with the requirements of this

notice and transmit the signed document,

including the acknowledgement, back to

the individual under a system that satisfies

the applicable notice requirements under

§ 1.401(a)-21(c).

IV. PAPERWORK REDUCTION ACT

The collection of information contained in this notice has been reviewed

988

and approved by the Office of Management and Budget in accordance with the

Paperwork Reduction Act (44 U.S.C.

3507) under control number 1545–1632.

An agency may not conduct or sponsor,

and a person is not required to respond

to, a collection of information unless the

collection of information displays a valid

OMB control number.

The collection of information is in

Section III.B of this notice. One of the

conditions for receiving temporary relief

from the physical presence requirement

in § 1.401(a)-21(d) is that the plan representative acknowledge that he or she

has witnessed the signature and transmit

the signed document, including the acknowledgement, back to the person under a system that satisfies the applicable

notice requirements under § 1.401(a)21. This condition is similar to the confirmation requirement for participant

elections in § 1.401(a)-21(d), requiring

that the individual making a participant election, within a reasonable time,

receive a confirmation of the election

through either a written paper document

or an electronic medium under a system that satisfies the applicable notice

requirements under § 1.401(a)-21(c). It

has been determined that the plan representative’s acknowledgment that he or

she witnessed the signature of the participant election is a minor modification

to the control number 1545–1632 and

should not result in any additional paperwork burden.

Books or records relating to a collection of information must be retained as

long as their contents may become material in the administration of any internal

revenue law. Generally, tax returns and tax

return information are confidential, as required by 26 U.S.C. 6103.

V. DRAFTING INFORMATION

The principal authors of this notice are

Arslan Malik and Pamela R. Kinard of

the Office of the Associate Chief Counsel (Employee Benefits, Exempt Organizations, and Employment Taxes). For

further information regarding this notice,

contact Arslan Malik at (202) 317-6700

and Pamela R. Kinard at (202) 317-6000

(not toll-free numbers).

Bulletin No. 2020–26

Sections 4375 & 4376 –

Insured and Self-Insured

Health Plans

Adjusted Applicable Dollar

Amount for Fee Imposed by

§§ 4375 and 4376

Notice 2020-44

I. PURPOSE

This notice provides the adjusted applicable dollar amount to be multiplied by

the average number of covered lives for

purposes of calculating the fee imposed by

§§ 4375 and 4376 of the Internal Revenue

Code for policy years and plan years that

end on or after October 1, 2019, and before

October 1, 2020. This notice also provides

transition relief for calculating the average

number of covered lives as part of calculating the applicable fee for policy years and

plan years that end on or after October 1,

2019, and before October 1, 2020.

II. BACKGROUND

Prior to the December 20, 2019 enactment of the Further Consolidated Appropriations Act, 2020, Pub. L. No. 116-94, 133

Stat. 2534 (the Act), § 4375 imposed a fee

on the issuer of a specified health insurance

policy for each policy year ending after

September 30, 2012, and before October

1, 2019, and § 4376 imposed a fee on the

plan sponsor of an applicable self-insured

health plan for each plan year ending after

September 30, 2012, and before October

1, 2019. The fee imposed by §§ 4375 and

4376 helps to fund the Patient-Centered

Outcomes Research Trust Fund (PCORTF)

and is calculated using the average number

of lives covered under the policy or plan

and the applicable dollar amount for that

policy year or plan year. The Act extended the termination dates to provide that

§§ 4375 and 4376 will not apply to policy and plan years ending after September

30, 2029, rather than policy and plan years

ending after September 30, 2019.

Under §§ 4375(a) and 4376(a), the

applicable dollar amount is $2 for pol1

icy and plan years ending on or after

October 1, 2013, and before October 1,

2014.1 Treas. Reg. §§ 46.4375-1(c)(4) and

46.4376-1(c)(3). Under §§ 4375(d) and

4376(d) and Treas. Reg. §§ 46.4375-1(c)

(4) and 46.4376-1(c)(3), the applicable

dollar amount for policy years and plan

years ending in any Federal fiscal year beginning on or after October 1, 2014, is increased based on increases in the projected per capita amount of National Health

Expenditures. Specifically, the applicable

dollar amount is the sum of –

(i) The applicable dollar amount for the

policy year or plan year ending in the

previous Federal fiscal year; plus

(ii) The amount equal to the product of –

(A) The applicable dollar amount for

the policy year or plan year ending in the previous Federal fiscal

year; and

(B) The percentage increase in the

projected per capita amount of

the National Health Expenditures

most recently released by the Department of Health and Human

Services (HHS) before the beginning of the Federal fiscal year.

Notice 2018-85, 2018-48, I.R.B. 788,

provides that the adjusted applicable dollar amount for policy years and plan years

that end on or after October 1, 2018, and

before October 1, 2019, is $2.45.

The Act amended §§ 4375(e) and

4376(e) to provide that §§ 4375 and 4376

will no longer apply beginning with policy and plan years ending after September 30, 2029. Therefore, the fee under

§§ 4375 and 4376 applies to any specified

health insurance policy and any applicable self-insured health plan with a policy

or plan year ending after September 30,

2012, and before September 30, 2029, including any policy or plan year ending after September 30, 2019. The Department

of the Treasury and the IRS anticipate

amending the regulations at §§ 46.43751, 46.4376-1, and 46.4377-1 to reflect the

statutory change in the termination dates.

III. TRANSITION RELIEF

Prior to enactment of the Act, due to the

anticipated termination of the fee under

§ 4375 for policy years ending after Sep-

tember 30, 2019, issuers of specified health

insurance policies for policy years ending

on or after October 1, 2019, and before

October 1, 2020, may not have anticipated

the need to identify the number of covered

lives for this period. Issuers may continue

to use one of the following four methods

specified in the regulations under § 4375

to calculate the average number of covered

lives for purposes of the fee imposed by

§ 4375: the actual count method, the snapshot method, the member months method,

and the state form method. See Treas. Reg.

§ 46.4375-1(c)(2)(i). In addition, for policy

years ending on or after October 1, 2019,

and before October 1, 2020, issuers may

use any reasonable method for calculating

the average number of covered lives. If an

issuer uses a reasonable method to calculate the average number of covered lives

for policy years ending on or after October

1, 2019, and before October 1, 2020, then

that reasonable method must be applied

consistently for the duration of the year and

the issuer must use the same method for all

policies for which a liability is reported on

Form 720 for that year.

Similarly, prior to enactment of the

Act, due to the anticipated termination of

the fee under § 4376 for plan years ending

after September 30, 2019, plan sponsors

of applicable self-insured health plans for

plan years ending on or after October 1,

2019, and before October 1, 2020, may

not have anticipated the need to identify

the number of covered lives for this period. Plan sponsors may continue to use

one of the following three methods specified in the regulations under § 4376 to

calculate the average number of covered

lives for purposes of the fee imposed by

§ 4376: the actual count method, the snapshot method, and the Form 5500 method.

See Treas. Reg. § 46.4376-1(c)(2)(i). In

addition, for plan years ending on or after October 1, 2019, and before October 1,

2020, plan sponsors may use any reasonable method for calculating the average

number of covered lives. If a plan sponsor

uses a reasonable method to calculate the

average number of covered lives for plan

years ending on or after October 1, 2019,

and before October 1, 2020, then that reasonable method must be applied consistently for the duration of the plan year.

The applicable dollar amount is $1 for policy and plan years ending before October 1, 2013.

Bulletin No. 2020–26

989

June 22, 2020

IV. ADJUSTED APPLICABLE

DOLLAR AMOUNT

The applicable dollar amount that must

be used to calculate the fee imposed by

§§ 4375 and 4376 for policy years and plan

years that end on or after October 1, 2019,

and before October 1, 2020, is $2.54. The

increase from the prior amount is calculated by multiplying the adjusted applicable

dollar amount for policy years and plan

years ending in the previous Federal fiscal year, $2.45, by the percentage increase

of the projected per capita amount of National Health Expenditures published by

HHS on February 19, 2019. See: https://

www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsProjected,Table

3. The percentage increase is calculated

after adjustment to reflect updates to the

data used to calculate the prior amount,

$2.45, which was based on the per capita

amounts of National Health Expenditures

for 2018 and 2019 published by HHS on

February 14, 2018.

V. EFFECTIVE DATE

This notice is effective for policy years

and plan years ending on or after October

1, 2019.

VI. DRAFTING INFORMATION

The principal author of this notice is

William Fischer of the Office of Associate Chief Counsel (Employee Benefits,

Exempt Organizations, and Employment

Taxes). For further information regarding

this notice, contact Mr. Fischer at (202)

317-5500 (not a toll-free number).

26 CFR 601.105: Examination of returns and claims

for refund, credit or abatement; determination of

correct tax liability.

(Also Part I, §§ 1001; 301.7701–2, 301.7701–3,

301.7701–4.)

Rev. Proc. 2020-34

SECTION 1. PURPOSE

In response to the Coronavirus Disease

2019 (COVID-19) emergency, this revenue procedure describes temporary safe

June 22, 2020

harbors for the purpose of determining

the Federal tax status of certain arrangements that hold real property as trusts.

Under the safe harbors, certain modifications to mortgage loans, certain modifications to leases, and certain additional

capital contributions are not treated under

§ 301.7701–4(c) of the Procedure and Administration Regulations as manifesting a

power to vary.

SECTION 2. BACKGROUND—

TRUSTS

.01 Section 301.7701–2(a) defines a

“business entity” as any entity recognized

for Federal tax purposes (including an entity with a single owner that may be disregarded as an entity separate from its owner

under § 301.7701–3) that is not properly

classified as a trust under § 301.7701–4

or otherwise subject to special treatment

under the Internal Revenue Code (Code).

.02 Section 301.7701–4(a) provides

that, generally speaking, an arrangement

is treated as a trust if the purpose of the

arrangement is to vest in trustees responsibility for the protection and conservation

of property for beneficiaries who cannot

share in the discharge of this responsibility and, therefore, are not associates in a

joint enterprise for the conduct of business

for profit.

.03 Section 301.7701–4(c) provides

that an “investment” trust is not classified

as a trust if there is a power under the trust

agreement to vary the investment of the

certificate holders. An investment trust

with a single class of ownership interests,

representing undivided beneficial interests

in the assets of the trust, is classified as a

trust if there is no power under the trust

agreement to vary the investments of the

certificate holders.

.04 Under § 677(a) of the Code, the

grantor of a trust is treated as the owner

of any portion of a trust whose income,

without the approval or consent of any adverse party is, or, in the discretion of the

grantor or a non-adverse party, or both,

may be distributed, held, or accumulated

for future distribution to the grantor or the

grantor’s spouse.

.05 A person that is treated as the owner of an undivided fractional interest of a

trust under subpart E of part I, subchapter J of chapter 1 of the Code (§§ 671 and

990

following), is considered to own the trust

assets attributable to that undivided fractional interest of the trust for Federal income tax purposes. See Rev. Rul. 88-103,

1988-2 C.B. 304; Rev. Rul. 85-45, 19851 C.B. 183; and Rev. Rul. 85-13, 1985-1

C.B. 184. See also § 1.1001-2(c), Example 5 of the Income Tax Regulations.

SECTION 3. REVENUE RULING

2004-86

.01 Rev. Rul. 2004-86, 2004-2 C.B.

191, holds that a Delaware statutory trust

(Trust) formed to hold real property subject to a lease under the trust agreement

described in the ruling is an arrangement

that is classified as a trust for Federal tax

purposes under § 301.7701-4(c). Each of

Trust’s owners is treated, by reason of

§ 677, as an owner of a pro rata portion

of Trust. Because an owner of an undivided fractional interest in Trust owns for

Federal tax purposes the assets of Trust

attributable to that interest, each owner is

considered to own for those purposes an

undivided fractional interest in the rental

real property held by Trust. Accordingly,

under § 1031 of the Code, a taxpayer may

exchange an interest in real property for

an interest in Trust without recognition of

gain or loss, if the other requirements of §

1031 are satisfied.

.02 Under the facts of Rev. Rul. 200486, an individual borrows money from a

bank and signs a 10-year note bearing adequate stated interest. On the same day, the

individual uses the proceeds of the loan to

purchase Blackacre, rental real property.

The note is secured by Blackacre and is

nonrecourse to the individual. Immediately after this purchase, the individual enters

into a net lease with a tenant (Tenant) for a

term of 10 years.

.03 Under the terms of the lease,

Tenant must pay all taxes, assessments,

fees, or other charges imposed on Blackacre by Federal, state, or local authorities.

In addition, Tenant must pay all insurance,

maintenance, ordinary repairs, and utilities relating to Blackacre. Tenant may

sublease Blackacre. Tenant’s rent is fixed.

The revenue ruling indicates that Tenant’s

rent qualifies as fixed even if the lease

agreement includes automatic periodic

adjustments to the rent that are based on a

fixed rate or on an objective index, such as

Bulletin No. 2020–26

an escalator clause based on the consumer

price index. No adjustments are within the

control of any of the parties of the lease.

The amount of rent is not contingent on

the tenant’s ability to lease the property,

on the tenant’s gross sales, or on net profits derived from the property.

.04 On the same day that the lease was

executed, the individual forms Trust and

contributes Blackacre to Trust. Upon the

transfer of Blackacre, Trust assumes the

rights and obligations of the individual

as to the note with the bank and the lease

with Tenant.

.05 The terms of Trust provide for the

following—

(1) A single class of trust interests,

each representing an undivided interest in

the assets of Trust (in this case, Blackacre,

which is subject to both the lease and the

note);

(2) Authorization for the trustee to establish a reasonable reserve for expenses

that are associated with Trust’s holding

Blackacre and that are payable out of trust

funds;

(3) Required quarterly distributions of

all available cash, less reserves, to each

beneficial owner of Trust in proportion to

that owner’s relative interest in Trust;

(4) The right of each beneficial owner

to an in-kind distribution of that owner’s

proportionate share of trust property;

(5) A requirement that Trust invest all

cash that it holds in either—

(a) Short term obligations of (or guaranteed by) the United States, or any agency or instrumentality thereof; or

(b) Certificates of deposit of a bank or

trust company having a minimum stated

surplus and capital;

(6) Requirements that the trustee both

invest only in obligations maturing prior

to the next distribution date and hold those

obligations until maturity;

(7) A limitation on the activities of the

trustee to collection and distribution of income;

(8) A prohibition against the trustee—

(a) Exchanging Blackacre for other

property;

(b) Purchasing assets other than the

short-term investments described above;

of assets (including money) to Trust;

(d) Renegotiating the terms of the debt

used to acquire Blackacre; and

(e) Renegotiating the lease with Tenant

except in the case of Tenant’s bankruptcy

or insolvency;

(9) The termination of Trust at the

earlier of 10 years or the disposition of

Blackacre.

.06 The ruling states that Trust would

have been treated as a business entity and

not a trust if Trust’s trustee had a power under the trust agreement to, among

other things, renegotiate the lease with

its tenant, to enter into leases with other

tenants, or to renegotiate or refinance the

mortgage loan whose proceeds were used

to purchase Blackacre.

SECTION 4. COVID-19

EMERGENCY AND REVENUE

PROCEDURE 2020-26

.01 On March 13, 2020, the President

of the United States issued an emergency

declaration under the Robert T. Stafford

Disaster Relief and Emergency Assistance

Act in response to the ongoing Coronavirus Disease 2019 (COVID-19) pandemic

(Emergency Declaration). The Emergency Declaration instructed the Secretary of

the Treasury “to provide relief from tax

deadlines to Americans who have been

adversely affected by the COVID-19

emergency, as appropriate, pursuant to 26

U.S.C. 7508A(a).”1

.02 To provide additional relief, on

March 27, 2020, Congress and the President enacted the Coronavirus Aid, Relief,

and Economic Security Act, Pub. L. No.

116-136, 134 Stat. 281 (CARES Act).

.03 On April 13, 2020, the Department

of the Treasury (Treasury Department)

and the Internal Revenue Service (IRS)

issued safe harbors in Rev. Proc. 2020-26,

2020-18 I.R.B. 753. These safe harbors

apply for determining the Federal income

tax status of certain securitization vehicles

that hold mortgage loans. Under the safe

harbors, certain modifications of mortgage loans in connection with forbearance

programs described in that guidance are

not treated as replacing the unmodified

obligation with a newly issued obligation,

as giving rise to prohibited transactions, or

as manifesting a power to vary.

.04 In the case of mortgage loans held

by real estate mortgage investment conduits (REMICs) and investment trusts,

Rev. Proc. 2020-26 applies to—

(1) Forbearance (and all related modifications) of a Federally backed mortgage

loan or a Federally backed multifamily

mortgage loan, if the forbearance is provided under section 4022 or 4023, respectively, of the CARES Act (CARES Act

Forbearances); and

(2) Forbearances (and all related

modifications) that are not CARES Act

Forbearances, that are agreed to by the

borrower of any Federally backed or

non-Federally backed mortgage loan, and

that are provided by a holder or servicer

of the loan under a forbearance program

for borrowers experiencing a financial

hardship due, directly or indirectly, to the

COVID-19 emergency. The forbearance

programs covered are those—

(a) Which are identical or similar to

those described in section 2.07 of Rev.

Proc. 2020-26; and

(b) Pursuant to which, between March

27, 2020, and December 31, 2020, inclusive, the borrower requests or agrees to

the forbearance (and all related modifications).

.05 Section 6.01 of Rev. Proc. 202026 provides that for mortgage loans held

by REMICs, forbearances (and all related

modifications) described in section 5.01

of Rev. Proc. 2020-26 are not treated as

resulting in a newly issued mortgage loan

for purposes of § 1.860G-2(b)(1), are not

prohibited transactions under § 860F(a)

(2) of the Code, and do not result in a

deemed reissuance of the REMIC regular

interests.

.06 Under section 6.02 of Rev. Proc.

2020-26, in the case of mortgage loans

held by investment trusts, certain transactions do not manifest a power to vary

the investment of the certificate holders.

These transactions are—

(1) CARES Act forbearances (and all

related modifications); and

(2) Forbearances (and all related modifications) that are described in section 2.07

of Rev. Proc. 2020-26, that are requested,

or agreed to, between March 27, 2020, and

December 31, 2020, and that are granted

as a result of a borrower experiencing a

https://www.whitehouse.gov/wp-content/uploads/2020/03/LetterFromThePresident.pdf

Bulletin No. 2020–26

991

June 22, 2020

financial hardship due to the COVID-19

emergency.

SECTION 5. COMMENTS

RECEIVED

.01 The Treasury Department and the

IRS received comments addressing arrangements organized as trusts under §

301.7701-4(c) and Rev. Rul. 2004-86 that

hold rental real property. The commenters

reported that many of these arrangements

and their tenants are experiencing financial hardship due, directly or indirectly, to

the COVID-19 emergency.

.02 These comments indicate that, in

order to respond appropriately to these

challenges, trustees may find it necessary

to—

(1) Respond to the COVID-19 financial hardship of their tenants by modifying the trust’s real property leases with the

tenants to defer or waive rent payments;

(2) Request relief under various forbearance programs with respect to debt

service on the mortgage loan secured by

the trust’s real property; and

(3) Accept additional cash contributions in order to avoid default on the

trust’s loan obligations, to satisfy lender

demands on which receiving a loan modification may be contingent, to pay trust

expenses, or to bolster trust reserves for

the payment of expenses and loan payments. Depending on the circumstances

for a particular trust, these contributions

may come pro rata from current trust interest holders, non-pro rata from these

current interest holders, or from outside

investors.

SECTION 6. SCOPE

.01 This revenue procedure applies

to arrangements that are trusts under

§ 301.7701‑4(c) and Rev. Rul. 2004-862

and that hold real property and engage in

one or more of the actions described in

sections 6.02, 6.03, or 6.04 of this revenue

procedure.

.02 Modification of one or more mortgage loans that secure the trust’s real property in—

(1) A CARES Act Forbearance (and

all related modifications); or

(2) A forbearance (and all related

modifications)—

(a) That are described in section 2.07

of Rev. Proc. 2020-26;

(b) That the trust requested, or agreed

to, between March 27, 2020, and December 31, 2020; and

trust experiencing a financial hardship due

to the COVID-19 emergency.

.03 Modifications of one or more real

property leases (including modifications

to the specific allocations of fixed rent

in the lease agreements as described in

§ 467 of the Code and the regulations under § 467; see section 9.01 of this revenue

procedure). The lease must have been entered into by the trust on or before March

13, 2020, and the modifications must have

been requested and agreed to on or after

March 27, 2020, and on or before December 31, 2020. The reason for the modifications must be—

(1) To coordinate the lease cash flows

with the cash flows that result from one

or more transactions described in section

6.02 of this revenue procedure; or

(2) To defer or waive one or more

tenants’ rental payments for any period

between March 27, 2020, and December

31, 2020 (and all related modifications),

because the tenants are experiencing a

financial hardship due to the COVID-19

emergency.

.04 Acceptance of cash contributions

that are made between March 27, 2020,

and December 31, 2020, as a result of the

trust experiencing financial hardship due

to the COVID-19 emergency, provided the

contribution must be needed to increase

permitted trust reserves, to maintain trust

property, to fulfill obligations under mortgage loans, or to fulfill obligations under

real property leases. See section 10 of

this revenue procedure regarding the tax

treatment of non-pro rata contributions or

contributions from new investors for an

interest in the trust.

SECTION 7. SAFE HARBOR

For the purpose of determining whether the arrangement is treated as a trust under § 301.7701-4(c) and Revenue Ruling

2004-86, the actions described in section

6 of this revenue procedure are not manifestations of a power to vary.

SECTION 8. NO INFERENCE

.01 No inferences should be drawn

about whether similar consequences

would obtain if an arrangement takes actions that fall outside the limited scope of

this revenue procedure.

.02 Thus, an arrangement’s qualification as a trust under § 301.7701-4(c) may

be affected by a waiver or deferral of rent

(and related modifications) that is inconsistent with section 3.03 of this revenue

procedure and the lease arrangement described in Rev. Rul. 2004-86.

.03 Similarly, contributions that are

not described in section 6.04 of this revenue procedure are outside the scope of

the safe harbor in section 7 of this revenue procedure. For example, the scope of

the safe harbor does not include additional contributions to the trust that are used

to make more than minor, non-structural

modifications to the trust’s real property.

Additionally, contributions of property

other than cash generally manifest a power to vary.

SECTION 9. GUIDANCE ON

MODIFICATIONS OF REAL

PROPERTY LEASES

.01 The regulations under § 467 include rules for determining the income

and deductions required to be taken into

account in connection with § 467 rental

agreements (generally, rental agreements

with increasing or decreasing rents, or

deferred or prepaid rents, as described in

§ 1.467-1). The fixed rent under a § 467

rental agreement is included in the income

of the lessor and deducted by the lessee

in accordance with the allocations of fixed

rent provided in the rental agreement. See

§ 1.467-1(d)(2)(iii). For agreements with

no specific allocation of fixed rent as described in § 1.467-1(c)(2)(ii), rent is included in the lessor’s income and deducted by the lessee in accordance with the

agreement’s rent payment schedule. For

agreements with a specific allocation of

rent, the specific allocation of rent is used

Although Rev. Rul. 2004–86 describes a trust that had been formed under a specific Delaware statute, the SCOPE of this revenue procedure includes trusts formed under the equivalent law

(if any) of other states or the District of Columbia.

June 22, 2020

992

Bulletin No. 2020–26

to determine the income and deductions

under the agreement.

.02 For § 467 rental agreements that

have a specific allocation of fixed rent, if

the payment terms under the rental agreement are modified under this revenue procedure because the tenant is experiencing

a financial hardship due to the COVID-19

emergency, amendments are also permitted to the agreement’s specific allocation

of fixed rent. In addition, any amendments

to the rental agreement must be given appropriate tax effect under the applicable

provisions of the Code and regulations,

including the provisions in § 1.467-1(f)

Bulletin No. 2020–26

relating to substantial modifications of

§ 467 rental agreements.

SECTION 10. GUIDANCE ON

TAX TREATMENT OF NON-PRO

RATA CONTRIBUTIONS FROM

CURRENT TRUST INTEREST

HOLDERS AND CONTRIBUTIONS

FROM NEW INVESTORS.

A cash contribution from one or more

new trust interest holders to acquire a trust

interest or a non-pro rata cash contribution from one or more current trust interest holders must be treated as a purchase

993

and sale under § 1001 of the Code of a

portion of each non-contributing (or lesser

contributing) trust interest holder’s proportionate interest in the trust’s assets.

SECTION 11. DRAFTING

INFORMATION

The principal author of this revenue procedure is Christiaan Cleary of

the Office of Associate Chief Counsel

(Passthroughs and Special Industries). For

further information, contact Christiaan

Cleary at (202) 317-6850 (not a toll-free

number).

June 22, 2020

Part IV

Notice of Proposed

Rulemaking

Certain Medical Care

Arrangements

REG-109755-19

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Notice of proposed rulemaking.

SUMMARY: This document contains

proposed regulations relating to section

213 of the Internal Revenue Code (Code)

regarding the treatment of amounts paid

for certain medical care arrangements, including direct primary care arrangements,

health care sharing ministries, and certain

government-sponsored health care programs. The proposed regulations affect

individuals who pay for these arrangements or programs and want to deduct the

amounts paid as medical expenses under

section 213.

DATES: Written or electronic comments

and requests for a public hearing must be

received by August 10, 2020. Requests

for a public hearing must be submitted as

prescribed in the “Comments and Requests for a Public Hearing” section.

ADDRESSES: Commenters are strongly

encouraged to submit public comments

electronically. Submit electronic submissions via the Federal eRulemaking Portal

at www.regulations.gov (indicate IRS and

REG-109755-19) by following the online

instructions for submitting comments.

Once submitted to the Federal eRulemaking Portal, comments cannot be edited

or withdrawn. 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 Department of the Treasury (Treasury Department) and the Internal Revenue Service (IRS) will publish for public

availability any comment submitted electronically, and to the extent practicable

on paper, to its public docket. Send paper

submissions to: CC:PA:LPD:PR (REG109755-19), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin

Station, Washington, DC 20044.

FOR FURTHER INFORMATION

CONTACT: Concerning the proposed

regulations, call Richard C. Gano IV of

the Office of Associate Chief Counsel

(Income Tax and Accounting), (202) 3177011 (not a toll-free call); concerning the

preamble discussion of health reimbursement arrangements or health savings accounts, call William Fischer of the Office

of Associate Chief Counsel (Employee

Benefits, Exempt Organizations, and Employment Taxes), (202) 317-5500 (not a

toll-free call); concerning the submission

of comments and/or requests for public

hearing, call Regina Johnson, (202) 3175177 (not a toll-free call).

SUPPLEMENTARY INFORMATION:

Background

1. Executive Order 13877

On June 24, 2019, President Trump issued Executive Order 13877, “Improving

Price and Quality Transparency in American Healthcare to Put Patients First” (84

FR 30849 (June 27, 2019)). The Executive

Order states that it is the policy of the Federal Government to ensure that patients

are engaged with their healthcare decisions and have the information requisite

for choosing the healthcare they want and

need. In furtherance of that policy, section

6(b) of the Executive Order directs the

Secretary of the Treasury, to the extent

consistent with law, to “propose regulations to treat expenses related to certain

types of arrangements, potentially includ-

ing direct primary care arrangements and

healthcare sharing ministries, as eligible

medical expenses under Section 213(d)”

of the Code. The proposed regulations

have been developed in response to this

Executive Order.

2. Deduction for Medical Expenses

Section 213(a) allows a deduction for

expenses paid during the taxable year,

not compensated for by insurance or otherwise, for medical care of the taxpayer,

the taxpayer’s spouse, or the taxpayer’s

dependent (as defined in section 152, determined without regard to subsections (b)

(1), (b)(2), and (d)(1)(B) of section 152),

to the extent the expenses exceed 10 percent of adjusted gross income (AGI) (7.5

percent of AGI for a taxable year beginning before January 1, 2021).1 A section

213 deduction is allowable only with

respect to medical expenses actually

paid during the taxable year, regardless

of when the incident or event that occasioned the expenses occurred, and regardless of the method of accounting used by

the taxpayer for filing income tax returns.

Section 1.213-1(a)(1) of the Income Tax

Regulations.

3. Definition of Medical Care under

Section 213(d)(1)

For purposes of determining whether

medical expenses are deductible under

section 213, section 213(d)(1) defines

“medical care” as amounts paid for (A)

the diagnosis, cure, mitigation, treatment,

or prevention of disease, or for the purpose of affecting any structure or function

of the body (referred to in this preamble

as “medical care under section 213(d)(1)

(A)”); (B) transportation primarily for and

essential to obtaining medical care referred

to in (A); (C) qualified long-term care services; or (D) insurance covering medical

care and transportation as described in (A)

and (B), respectively (referred to in this

preamble as “medical insurance”), including supplementary medical insurance for

Section 103 of the Taxpayer Certainty and Disaster Tax Relief Act of 2019, enacted as part of the Further Consolidated Appropriations Act, 2020, Pub. L. No. 116-94, 133 Stat. 2534, Div.

Q, Title I (2019)), amending section 213(f) to reduce the threshold for the deduction to 7.5 percent of AGI for tax years beginning before January 1, 2021.

June 22, 2020

994

Bulletin No. 2020–26

the aged (Medicare Part B), and any qualified long-term care insurance contract. See

also §1.213-1(e).

A. Medical Care under Section 213(d)

(1)(A)

Deductions for amounts paid for medical care under section 213(d)(1)(A) are

confined strictly to expenses incurred primarily for the prevention or alleviation of

a physical or mental defect or illness and

for operations or treatment affecting any

portion of the body. Section 1.213-1(e)(1)

(ii). Thus, payments for the following are

payments for medical care under section

213(d)(1)(A): hospital services; nursing

services; medical, laboratory, surgical,

dental and other diagnostic and healing

services; obstetrical expenses, expenses

of therapy, and X-rays; prescribed drugs

or insulin; and artificial teeth or limbs.

Section 213(b) and §1.213-1(e)(1)(ii).

However, an expenditure which is merely

beneficial to the general health of an individual, such as an expenditure for a vacation, is not an expenditure for medical

care. Section 1.213-1(e)(1)(ii). Amounts

paid for illegal operations or treatments

are not deductible. Id.

B. Medical Insurance under Section

213(d)(1)(D)

Expenditures for medical insurance

described in section 213(d)(1)(D) are

amounts paid for medical care only to the

extent such amounts are paid for insurance covering the diagnosis, cure, mitigation, treatment, or prevention of disease;

for the purpose of affecting any structure

or function of the body; or for transportation primarily for and essential to medical care. Section 1.213-1(e)(4)(i)(a).

Amounts are considered payable for other

than medical care under a contract if the

contract provides for the waiver of premiums upon the occurrence of an event. Id.

In the case of an insurance contract under

which amounts are payable for other than

medical care (as, for example, a policy

providing an indemnity for loss of income

or for loss of life, limb, or sight), (1) no

amount may be treated as paid for medical insurance unless the charge for such

insurance is either separately stated in the

contract or furnished to the policyholder

by the insurer in a separate statement, (2)

the amount treated as paid for medical insurance may not exceed such charge, and

(3) no amount may be treated as paid for

medical insurance if the amount specified

in the contract (or furnished to the policyholder by the insurer in a separate statement) as the charge for such insurance is

unreasonably large in relation to the total

charges under the contract (considering

the relationship of the coverages under the

contract together with all the facts and circumstances). Id.

In determining whether a contract

constitutes an “insurance” contract for

purposes of section 213, it is irrelevant

whether the benefits are payable in cash

or in services. Section 1.213-1(e)(4)(i)(a).

For example, amounts paid for hospitalization insurance, for membership in an

association furnishing cooperative or socalled free-choice medical service, or for

group hospitalization and clinical care are

payments for medical insurance. Id. In addition, premiums paid for Medicare Part

B are amounts paid for medical insurance.

Id.

Explanation of Provisions

In developing the proposed regulations,

the Treasury Department and the IRS considered how to carry out the objectives of

Executive Order 13877 in a way permitted by law and supported by sound policy. The Treasury Department and the IRS

undertook a review of direct primary care

arrangements and health care sharing ministries by meeting with practitioners and

individuals who operate the arrangements

to analyze the facts of those arrangements.

After gathering information on those arrangements and considering the relevant

legal authorities, the Treasury Department

and the IRS propose that expenditures

for direct primary care arrangements and

health care sharing ministry memberships

are amounts paid for medical care as defined in section 213(d), and that amounts

paid for those arrangements may be deductible medical expenses under section

213(a). The proposed regulations also

clarify that amounts paid for certain arrangements and programs, such as health

maintenance organizations (HMO) and

certain government-sponsored health care

programs, are amounts paid for medical

insurance under section 213(d)(1)(D).2

These proposed regulations do not affect

the tax treatment of any medical care arrangement that currently qualifies as medical care under section 213(d).

1. Definition of Direct Primary Care

Arrangement

The proposed regulations define a

“direct primary care arrangement” as a

contract between an individual and one

or more primary care physicians under

which the physician or physicians agree to

provide medical care (as defined in section

213(d)(1)(A)) for a fixed annual or periodic fee without billing a third party. The

proposed regulations define a “primary

care physician” as an individual who is a

physician (as described in section 1861(r)

(1) of the Social Security Act (SSA)) who

has a primary specialty designation of

family medicine, internal medicine, geriatric medicine, or pediatric medicine. The

definition is adopted from paragraph (I)

of the definition of “primary care practitioner” in section 1833(x)(2)(A)(i) of the

SSA. The Treasury Department and the

IRS request comments on the definition of

primary care physician and on the definition of direct primary care arrangement.

The Treasury Department and the IRS

also request comments on whether to expand the definition of a direct primary

care arrangement to include a contract

between an individual and a nurse practi-

The proposed regulations and this preamble do not address any issues under Title I of the Employee Retirement Income Security Act of 1974, as amended (ERISA) that are within the interpretive and regulatory jurisdiction of the U.S. Department of Labor. For example, the proposed regulations and this preamble do not address whether any particular arrangement or payment

constitutes, or is part of, an employee welfare benefit plan within the meaning of ERISA section 3(1). Rather, the Department of Labor advised the Treasury Department and the IRS that an

employer’s funding of a benefit arrangement, in most circumstances, is sufficient to treat an arrangement that provides health benefits to employees as an ERISA-covered plan. Compare 29

CFR 2510.3-1(l), which provides a safe harbor from ERISA-coverage for certain reimbursements for non-group health insurance premiums solely for individual health insurance coverage as

defined in 29 CFR 2590.701-2 that does not consist solely of excepted benefits as defined in 29 CFR 2590.732(c).

Bulletin No. 2020–26

995

June 22, 2020

tioner, clinical nurse specialist, or physician assistant (as those terms are defined

in section 1861(aa)(5) of the SSA) who

provides primary care services under the

contract. The Treasury Department and

the IRS request comments on how to define primary care services provided by

a non-physician practitioner, including

whether the definition of primary care

services in section 1833(x)(2)(B) of the

SSA is appropriate.

In addition, the Treasury Department

and the IRS understand that other types

of medical arrangements between health

practitioners and individuals exist that

do not fall within the definition of direct

primary care. For example, an agreement

between a dentist and a patient to provide

dental care, or an agreement between a

physician and a patient to provide specialty care, would not be a direct primary

care arrangement but nonetheless may be

the provision of medical care under section 213(d). The Treasury Department and

the IRS request comments on whether the

final regulations should clarify the treatment of other types of arrangements that

are similar to direct primary care arrangements but do not meet the definition in the

proposed regulations.

2. Definition of Health Care Sharing

Ministry

For the purposes of section 213, the

proposed regulations define a health care

sharing ministry as an organization: (1)

which is described in section 501(c)(3)

and is exempt from taxation under section 501(a); (2) members of which share

a common set of ethical or religious beliefs and share medical expenses among

members in accordance with those beliefs and without regard to the State in

which a member resides or is employed;

(3) members of which retain membership even after they develop a medical

condition; (4) which (or a predecessor

of which) has been in existence at all

times since December 31, 1999, and

medical expenses of its members have

been shared continuously and without

interruption since at least December 31,

1999; and (5) which conducts an annual

audit which is performed by an independent certified public accounting firm in

accordance with generally accepted ac-

June 22, 2020

counting principles and which is made

available to the public upon request.

This definition is from section 5000A(d)

(2)(B)(ii), which provides that the individual shared responsibility payment

(which is zero after December 31, 2018)

does not apply to an individual who is

a member of a health care sharing ministry. The Treasury Department and the

IRS request comments on the definition

of a health care sharing ministry.

3. Analysis of Medical Care under

Section 213(d)(1)(A)

Direct primary care arrangements, as

defined in the proposed regulations, may

encompass a broad range of facts. Depending on the facts, a payment for a direct primary care arrangement may be a payment

for medical care under section 213(d)(1)

(A) or, as discussed below, may be a payment for medical insurance under section

213(d)(1)(D). For example, payments for

a direct primary care arrangement that

solely provides for an anticipated course

of specified treatments of an identified

condition, or solely provides for an annual physical examination, are payments

for medical care under section 213(d)(1)

(A). However, so long as a direct primary

care arrangement meets the definition set

forth in the proposed regulations, amounts

paid for the arrangement will qualify as

an expense for medical care under section

213(d), regardless of whether the arrangement is for medical care under section

213(d)(1)(A) or medical insurance under

section 213(d)(1)(D).

Health care sharing ministries, unlike direct primary care arrangements,

do not themselves provide any medical

treatment or services that would qualify

as medical care under section 213(d)(1)

(A). Instead, membership in a health care

sharing ministry entitles members to share

their medical bills through the ministry

and potentially receive payments from

other members to help with their medical

bills. The membership payments are not

payments for medical care under section

213(d)(1)(A). However, as further explained below, these proposed regulations

provide that amounts paid for membership

in a health care sharing ministry may be

payments for medical insurance under

section 213(d)(1)(D).

996

4. Analysis of Medical Insurance under

Section 213(d)(1)(D)

Section 213(d)(1)(D) does not define

the term “insurance.” When a federal statute uses a term without an accompanying

definition, the meaning of the term must

be determined from the ordinary use of the

term, in conjunction with any guidance

found in the structure of the relevant statute and its legislative history. See Group

Life & Health Insurance Co. v. Royal

Drug. Co., 440 U.S. 205, 211 (1979).

The predecessor to section 213, section

23x, was originally enacted in 1942 and

allowed a deduction for medical care expenses, including amounts paid for health

insurance. Although the statutory language did not define “insurance” for purposes of the medical expense deduction,

the legislative history specifically states

that amounts paid for health insurance

are included in the category of medical

expenses, and that payments for “hospitalization insurance, or for membership

in an association furnishing cooperative

or so-called free-choice medical service,

or group hospitalization and clinical care

are intended, for purposes of this section,

to be included as amounts which may be

deducted.” This language from the legislative history was incorporated into the section 213 regulations in 1957 and remains

unchanged. See §1.213-1(e)(4)(i)(a).

Based on that legislative history, the Treasury Department and the IRS conclude

that Congress intended that “insurance”

for section 213 purposes be read broadly.

Indeed, the Treasury Department and the

IRS have interpreted “insurance” broadly

over the years in guidance under section

213. See, e.g., Rev. Rul. 79-175, 1979-1

C.B. 117 (premiums paid for Medicare

Part A coverage are amounts paid for medical insurance); Rev. Rul. 74-429, 1974-2

C.B. 83 (nonrefundable fixed amount paid

by a taxpayer for an agreement with an

optometrist to replace the taxpayer’s contact lenses for one year if they became lost

or damaged is an amount paid for medical

insurance); Rev. Rul. 68-433, 1968-2 C.B.

110 (insurance premiums paid for a policy

that provides only for reimbursement of

the cost of prescription drugs are amounts

paid for medical insurance). Further, IRS

Publication 502 (Medical and Dental Expenses) states the long-standing IRS posi-

Bulletin No. 2020–26

tion that amounts paid for membership in

an HMO are treated as medical insurance

premiums.

The Treasury Department and the IRS

also conclude that the general insurance

principles used for subchapter L purposes are not controlling for purposes of

determining whether payment for an arrangement is treated as an amount paid

for medical insurance under section 213.

Subchapter L does not define insurance.

It provides a definition of the term “insurance company” for purposes of determining whether an entity is an insurance

company for federal income tax purposes.

However, there is no requirement in section 213 that amounts be paid to an insurance company to qualify as payments for

medical insurance. Further, the legislative

history of section 213 indicates that medical insurance is not limited to traditional

health insurance provided by an insurance

company. Thus, although payments to an

insurance company for medical care may

be amounts paid for medical insurance

under section 213(d)(1)(D), amounts need

not be paid to an insurance company to

be payments for medical insurance under

section 213.

As noted above, depending on the specific facts regarding an arrangement, a payment for a direct primary care arrangement

may be a payment for medical care under

section 213(d)(1)(A) or may be a payment

for medical insurance under section 213(d)

(1)(D). Regardless of the characterization

of an arrangement as medical care under

section 213(d)(1)(A) or medical insurance

under section 213(d)(1)(D), an amount

paid for the arrangement will qualify as a

medical expense under section 213. However, the characterization of a direct primary care arrangement as medical insurance

under section 213(d)(1)(D) has implications for purposes of the rules for health

savings accounts (HSAs) under section

223. Specifically, as explained later in this

preamble, if an individual enters into a direct primary care arrangement, the type of

coverage provided by the arrangement will

impact whether or not he or she is an eligible individual for purposes of section 223.

Under these proposed regulations, payments for membership in a health care

sharing ministry that shares expenses for

medical care, as defined in section 213(d)

(1)(A), are payments for medical insur-

Bulletin No. 2020–26

ance under section 213(d)(1)(D). The purpose of a health care sharing ministry is

for members to share the burden of their

medical expenses with other members.

Members assist in the payment of other

members’ medical bills, and possibly receive reimbursement for their own medical bills in return. Whether this is done

by making membership payments to the

ministry or by sending the payments directly to other members, the substance

of the transaction is the same. Similar to

traditional medical insurance premiums,

amounts paid for membership in a health

care sharing ministry allow members who

incur expenses for medical care under

section 213(d)(1)(A) to submit claims for

those expenses and potentially receive

payments to help cover those expenses.

Accordingly, the proposed regulations

provide that medical insurance under section 213(d)(1)(D) includes health care

sharing ministries that share expenses

for medical care under section 213(d)(1)

(A). This proposal under section 213 has

no bearing on whether a health care sharing ministry is considered an insurance

company, insurance service, or insurance

organization (health insurance issuer) for

other purposes of the Code, ERISA, the

Public Health Service Act (PHS Act), or

any other Federal or State law. In addition,

the proposed regulations incorporate the

long-standing position of the IRS treating

amounts paid for membership in an HMO

as medical insurance premiums for section 213 purposes. In contrast, amounts

paid to an HMO or a provider to cover

coinsurance, copayment, or deductible

obligations under an HMO’s terms are

payments for medical care under section

213(d)(1)(A). Regardless of their classification, both HMO amounts paid are eligible for deduction as a medical expense

under section 213(a).

Finally, the proposed regulations clarify that amounts paid for coverage under

certain government-sponsored health care

programs are treated as amounts paid for

medical insurance under section 213(d)(1)

(D). The proposed regulations incorporate

the guidance in section 213(d)(1)(D) and

Rev. Rul. 79-175, respectively, that Medicare Parts A and B are medical insurance,

and clarify that Medicare Parts C and D

are medical insurance, for purposes of

section 213. The proposed regulations

997

also provide that Medicaid, the Children’s

Health Insurance Program (CHIP), TRICARE, and certain veterans’ health care

programs are medical insurance under

section 213(d)(1)(D). Thus, to the extent

a particular government-sponsored health

program requires individuals to pay premiums or enrollment fees for coverage

under the program, those amounts are eligible for deduction as a medical expense

under section 213. The Treasury Department and the IRS request comments on

whether amounts paid for other government-sponsored health care programs

should be treated as amounts paid for

medical insurance, and if so, which specific government-sponsored health care

programs should be treated as medical

insurance.

5. Direct Primary Care Arrangements,

Health Reimbursement Arrangements

(HRAs), and HSAs

A. Direct Primary Care Arrangements

and HRAs

An HRA (other than a qualified small

employer health reimbursement arrangement (QSEHRA)) is a type of account-based group health plan funded

solely by employer contributions (with

no salary reduction contributions or other contributions by employees) that reimburses an employee solely for medical

care expenses incurred by the employee

(and, at the discretion of the plan sponsor, the employee’s family), up to a maximum dollar amount for a coverage period.

See Notice 2002-45, 2002-2 C.B. 93 and

Rev. Rul. 2002-41, 2002-2 C.B. 75. Because an HRA cannot by itself satisfy the

prohibition on lifetime and annual dollar

limits for group health plans under PHS

Act section 2711 or the requirement to

provide coverage for certain preventive

services without cost sharing under PHS

Act section 2713 (both of which are incorporated by reference in section 9815),

unless an applicable exception applies,

it must be integrated with coverage that

otherwise satisfies those requirements.

See §54.9815-2711. A QSEHRA is a type

of HRA, except that it generally is not a

group health plan and is subject to additional specific requirements, including

the requirement that it may be provided

June 22, 2020

only by an employer that is not an applicable large employer, as defined in section

4980H(c)(2). See section 9831. Because

QSEHRAs are generally not group health

plans, there is no need for them to be integrated with other coverage.3

An HRA, including a QSEHRA, an

HRA integrated with a traditional group

health plan, an HRA integrated with individual health insurance coverage or

Medicare (individual coverage HRA), or

an excepted benefit HRA, generally may

reimburse expenses for medical care, as

defined under section 213(d). Thus, an

HRA may provide reimbursements for direct primary care arrangement fees.

B. Direct Primary Care Arrangements

and HSAs

Section 223 permits eligible individuals to establish and contribute to HSAs.

In general, an HSA is a tax-exempt trust

or custodial account established exclusively for the purpose of paying qualified

medical expenses of the account beneficiary who, for the months for which

contributions are made to an HSA, is

covered under a high deductible health

plan (HDHP). See section 223(d); Notice 2004-2, 2004-1 C.B. 269, Q&A 1.

An eligible individual is, with respect

to any month, any individual if (i) such

individual is covered under an HDHP as

of the first day of such month, and (ii)

such individual is not, while covered under an HDHP, covered under any health

plan which is not an HDHP, and which

provides coverage for any benefit which

is covered under the HDHP. See section 223(c)(1); Notice 2004-2, Q&A 2.

An HDHP is a health plan that satisfies

the minimum annual deductible requirement and maximum out-of-pocket expenses requirement under section 223(c)

(2)(A), and meets certain other requirements. See section 223(c)(2); Notice

2004-2, Q&A 3.

Section 223(c)(1)(B) provides that,

in addition to coverage under an HDHP,

an eligible individual may have “disregarded coverage,” which includes only

certain permitted insurance under sec-

tion 223(c)(3), and coverage (whether

through insurance or otherwise) for accidents, disability, dental care, vision care,

long-term care, or certain health flexible

spending arrangements. Section 223(c)

(3) provides that permitted insurance is

insurance relating to liabilities incurred

under worker’s compensation laws, tort

liabilities, or liabilities relating to ownership or use of property, insurance for a

specified disease or illness, and insurance

paying a fixed amount per day (or other

period) of hospitalization. In addition,

section 223(c)(2)(C) provides that an

HDHP may provide preventive care before the minimum annual deductible for

an HDHP is met.

The legislative history to section 223

states that “[e]ligible individuals for

HSAs are individuals who are covered by

a high deductible health plan and no other health plan that is not a high deductible

health plan.” H.R. Conf. Rep. No. 391,

108th Cong., 1st Sess. 841 (2003). The

legislative history also states that, “[a]n

individual with other coverage in addition

to a high deductible health plan is still eligible for an HSA if such other coverage

is certain permitted insurance or permitted

coverage.” Id.

In Rev. Rul. 2004-38, 2004-1 C.B. 717,

an individual was covered by a health

plan that satisfied the requirements to be

an HDHP under section 223(c)(2) (including the minimum annual deductible

under section 223(c)(2)(A)), but the plan

did not include coverage for prescription

drugs. The individual was also covered

by another plan (or rider) providing prescription drug benefits that required copays but was not subject to the minimum

annual deductible under section 223(c)

(2)(A). Rev. Rul. 2004-38 held that an individual covered by an HDHP that does

not cover prescription drugs, and who is

also covered by a separate plan (or rider)

that provides prescription drug benefits

before the minimum annual deductible

is met, is not an eligible individual under section 223(c)(1)(A) and may not

contribute to an HSA. Accordingly, if an

individual has coverage that is not disregarded coverage or preventive care, and

that provides benefits before the minimum annual deductible is met, the individual is not an eligible individual. See

also Notice 2008-59, 2008-2 C.B. 123,

Q&A 2 and 3.

The Treasury Department and the IRS

understand that direct primary care arrangements typically provide for an array

of primary care services and items, such

as physical examinations, vaccinations,

urgent care, laboratory testing, and the diagnosis and treatment of sickness or injuries. This type of DPC arrangement would

constitute a health plan or insurance that

provides coverage before the minimum

annual deductible is met, and provides

coverage that is not disregarded coverage

or preventive care. Therefore, an individual generally is not eligible to contribute to

an HSA if that individual is covered by a

direct primary care arrangement. However, in the limited circumstances in which

an individual is covered by a direct primary care arrangement that does not provide

coverage under a health plan or insurance

(for example, the arrangement solely provides for an anticipated course of specified

treatments of an identified condition) or

solely provides for disregarded coverage

or preventive care (for example, it solely

provides for an annual physical examination), the individual would not be precluded from contributing to an HSA solely due

to participation in the direct primary care

arrangement. If the direct primary care arrangement fee is paid by an employer, that

payment arrangement would be a group

health plan and it (rather than the direct

primary care arrangement), would disqualify the individual from contributing

to a HSA.

6. Health Care Sharing Ministries, HRAs,

and HSAs

Under the regulations authorizing

individual coverage HRAs, health care

sharing ministries cannot integrate with

an individual coverage HRA. However, under these proposed regulations, an

HRA, including an HRA integrated with

a traditional group health plan, an individual coverage HRA, a QSEHRA, or an

However, under section 9831(d)(2)(B)(ii), a QSEHRA may only provide reimbursements to an eligible employee after the eligible employee provides proof of coverage, and consistent with

section 106(g), the coverage must qualify as minimum essential coverage as defined in section 5000A(f).

June 22, 2020

998

Bulletin No. 2020–26

excepted benefit HRA, may reimburse

payments for membership in a health

care sharing ministry as a medical care

expense under section 213(d). Because

the proposed regulations provide that

health care sharing ministries are medical insurance under section 213(d)(1)

(D) that is not permitted insurance, membership in a health care sharing ministry

would preclude an individual from contributing to an HSA.

Proposed Applicability Date

These regulations are proposed to apply for taxable years that begin on or after

the date of publication of a Treasury decision adopting these rules as final regulations in the Federal Register.

Special Analyses

I. Regulatory Planning and Review

This regulation is subject to review under section 6 of Executive Order 12866

pursuant to the April 11, 2018, Memorandum of Agreement (“April 11, 2018

MOA”) between the Treasury Department and the Office of Management and

Budget (“OMB”) regarding review of tax

regulations. The Acting Administrator of

the Office of Information and Regulatory

Affairs (“OIRA”), OMB, has waived review of this proposed rule in accordance

with section 6(a)(3)(A) of Executive Order 12866. OIRA will subsequently make

a significance determination of the final

rule under Executive Order 12866 pursuant to the terms of section 1 of the April

11, 2018 MOA.

II. Unfunded Mandates Reform Act

Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) requires that agencies assess anticipated

costs and benefits and take certain other actions before issuing a final rule that

includes any Federal mandate that may

result in expenditures in any one year

by a state, local, or tribal government, in

the aggregate, or by the private sector, of

$100 million (updated annually for inflation). This proposed rule does not include

any Federal mandate that may result in

expenditures by state, local, or tribal gov-

Bulletin No. 2020–26

ernments, or by the private sector in excess of that threshold.

III. Executive Order 13132: Federalism

Executive Order 13132 (entitled

“Federalism”) prohibits an agency from

publishing any rule that has federalism

implications if the rule either imposes

substantial, direct compliance costs on

state and local governments, and is not

required by statute, or preempts state law,

unless the agency meets the consultation

and funding requirements of section 6 of

the Executive Order. This proposed rule

does not have federalism implications and

does not impose substantial direct compliance costs on state and local governments

or preempt state law within the meaning

of the Executive Order.

IV. Regulatory Flexibility Act

Pursuant to the Regulatory Flexibility

Act (5 U.S.C. chapter 6), it is hereby certified that these proposed regulations will

not have a significant economic impact on

a substantial number of small entities. The

proposed regulations directly affect individuals and not entities. Accordingly, the

proposed rule will not have a significant

economic impact on a substantial number

of small entities.

In accordance with section 7805(f),

this notice of proposed rulemaking has

been submitted to the Chief Counsel of the

Office of Advocacy of the Small Business

Administration for comment on its impact

on small business.

timely submits electronic or written comments. Requests for a public hearing are

also encouraged to be made electronically. If a public hearing is scheduled, notice

of the date, time, and place for the public

hearing will be published in the Federal

will be held telephonically. Any telephonic hearing will be made accessible to people with disabilities.

Statement of Availability of IRS

Documents

IRS revenue procedures, revenue rulings, notices, and other guidance cited in

this preamble are published in the Internal

Revenue 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 proposed

regulations is Richard C. Gano IV of the

Office of Associate Chief Counsel (Income Tax and Accounting). However,

other personnel from the Treasury Department and the IRS participated in their development.

List of Subjects in 26 CFR Part 1

Income taxes, Reporting and recordkeeping requirements.

Comments and Requests for a Public

Hearing

Proposed Amendments to the

Regulations

Before these proposed regulations are

adopted as final regulations, consideration will be given to comments that are

submitted timely to the IRS as prescribed

in this preamble in the “ADDRESSES”

section. The Treasury Department and the

IRS request comments on all aspects of

the proposed regulations. Any electronic

comments submitted, and to the extent

practicable any paper comments submitted, will be made available at www.regulations.gov or upon request.

A public hearing will be scheduled if

requested in writing by any person who

Accordingly, 26 CFR part 1 is proposed to be amended as follows:

999

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 1.213-1 is amended by:

1. Redesignating paragraphs (e)(1)(v)

and (vi) as (e)(1)(vi) and (vii) respectively.

2. Adding a new paragraph (e)(1)(v).

June 22, 2020

Redesingnating newly redesignated

paragraphs (e)(1)(vi)(a) through (c)

as (e)(1)(vi)(A) through (C).

4. Redesignating paragraphs (e)(4)(i)(a)

and (b) as (e)(4)(i)(B) and (C) respectively.

5. Adding a new paragraph (e)(4)(i)(A).

6. Revising newly redesignated paragraph (e)(4)(i)(B).

7. In newly redesignated paragraph (e)

(4)(i)(C):

i. Adding a subject heading;

ii. Redsignating the introductory

text as paragraph (e)(4)(i)(C)(1)

introductory text and paragraphs

(e)(4)(i)(C)(1) and (2) as paragraphs (e)(4)(i)(C)(1)(i) and (ii);

iii. Removing the words “(a) of this

subdivision” and add in their

place the words “paragraphs (e)

(4)(i)(A) and (B) of this section”

in newly redesignated paragraph

(e)(4)(i)(C)(1) introductory text;

iv. Designating the undesignated

paragraph following newly redsignated paragraph (e)(4)(i)(C)

(1)(ii) as paragraph (e)(4)(i)(C)

(2); and

v. Removing “subdivision (b)” and

adding in its place “paragraph (e)

(4)(i)(C)” in newly designated

paragraph (e)(4)(i)(C)(2)

The additions and revision read as follows:

§1.213-1 Medical, dental, etc., expenses.

*****

(e)* * *

(1)* * *

(v)(A) Direct primary care arrangements. Expenses paid for medical care under section 213(d) include amounts paid

for a direct primary care arrangement. A

“direct primary care arrangement” is a

contract between an individual and one

or more primary care physicians under

which the physician or physicians agree

to provide medical care (as defined in section 213(d)(1)(A)) for a fixed annual or

periodic fee without billing a third party. A

“primary care physician” is an individual

who is a physician (as described in section 1861(r)(1) of the Social Security Act)

who has a primary specialty designation

of family medicine, internal medicine,

geriatric medicine, or pediatric medicine.

June 22, 2020

(B) Applicability date. The rules of this

paragraph (e)(1)(v) apply to taxable years

ending on or after [the date of publication

of the Treasury decision adopting these

rules as final regulations in the Federal

*****

(4)(i)(A) Medical insurance contracts

and programs—(1) In general. In determining whether a contract constitutes an

“insurance” contract under section 213(d)

(1)(D), it is irrelevant whether the benefits are payable in cash or in services. For

example, amounts paid for hospitalization

insurance, for membership in an association furnishing cooperative or so-called

free-choice medical service, for group

hospitalization and clinical care, or for

membership in a health maintenance organization (HMO) are payments for medical

insurance under section 213(d)(1)(D).

(2) Health care sharing ministries.—

Amounts paid for membership in a health

care sharing ministry that shares expenses for medical care, as defined in section

213(d)(1)(A), are payments for medical

insurance under section 213(d)(1)(D). A

health care sharing ministry is an organization:

(i) Which is described in section 501(c)

(3) and is exempt from taxation under section 501(a);

(ii) Members of which share a common

set of ethical or religious beliefs and share

medical expenses among members in accordance with those beliefs and without

regard to the State in which a member resides or is employed;

(iii) Members of which retain membership even after they develop a medical

condition;

(iv) Which (or a predecessor of which)

has been in existence at all times since December 31, 1999, and medical expenses of

its members have been shared continuously and without interruption since at least

December 31, 1999; and

(v) Which conducts an annual audit

which is performed by an independent

certified public accounting firm in accordance with generally accepted accounting

principles and which is made available to

the public upon request.

(3) Government-sponsored health

care programs. Amounts paid for coverage under government-sponsored health

1000

care programs may be amounts paid for

medical insurance under section 213(d)

(1)(D). Taxes imposed by any governmental unit that fund such a program,

however, do not constitute amounts paid

for medical insurance. The following

government-sponsored health care programs are medical insurance under section 213(d)(1)(D):

(i) The Medicare program under Title XVIII of the Social Security Act (42

U.S.C. 1395c and following sections), including Parts A, B, C, and D;

(ii) Medicaid programs under title XIX

of the Social Security Act (42 U.S.C. 1396

and following sections);

(iii) The Children’s Health Insurance

Program (CHIP) under title XXI of the

Social Security Act (42 U.S.C. 1397aa and

following sections);

(iv) Medical coverage under chapter 55

of title 10, U.S.C., including coverage under the TRICARE program; and

(v) Veterans’ health care programs under chapter 17 or 18 of Title 38 U.S.C.

(4) Applicability date. The rules of this

paragraph (e)(4)(i)(A) apply to taxable

years ending on or after [the date of publication of the Treasury decision adopting

these rules as final regulations in the Federal Register].

(B) Insurance contract covering

more than medical care. Amounts are

paid for medical insurance under section

213(d)(1)(D) only to the extent that such

amounts are paid for insurance covering

expenses of medical care referred to in

paragraph (e)(1) of this section or for

any qualified long-term care insurance

contract as defined in section 7702B(b).

Amounts will be considered payable for

other than medical insurance under a

contract if the contract provides for the

waiver of premiums upon the occurrence

of an event. In the case of an insurance

contract under which amounts are payable for other than medical insurance

(as, for example, a policy providing an

indemnity for loss of income or for loss

of life, limb, or sight) –

(1) No amount shall be treated as

paid for medical insurance under section

213(d)(1)(D) unless the charge for such

insurance is either separately stated in the

contract or furnished to the policyholder

by the insurer in a separate statement,

Bulletin No. 2020–26

(2) The amount taken into account as

the amount paid for such medical insurance shall not exceed such charge, and

(3) No amount shall be treated as paid

for such medical insurance if the amount

specified in the contract (or furnished to

the policyholder by the insurer in a separate statement) as the charge for such insurance is unreasonably large in relation

Bulletin No. 2020–26

to the total charges under the contract. In

determining whether a separately stated

charge for insurance covering expenses of

medical care is unreasonably large in relation to the total premium, the relationship

of the coverage under the contract together with all of the facts and circumstances

shall be considered.

1001

*****

Sunita Lough,

Deputy Commissioner for Services

and Enforcement.

(Filed by the Office of the Federal Register on July

10, 2020, 4:15 p.m., and published in the issue of the

Federal Register for June 13, 2020, 85 F.R. 35398)

June 22, 2020

Definition of Terms

Revenue rulings and revenue procedures

(hereinafter referred to as “rulings”) that

have an effect on previous rulings use the

following defined terms to describe the

effect:

Amplified describes a situation where

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

being extended to apply to a variation of

the fact situation set forth therein. Thus, if

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

the same principle also applies to B, the

earlier ruling is amplified. (Compare with

modified, below).

Clarified is used in those instances

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

caused, or may cause, some confusion. It

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

Distinguished describes a situation

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

difference between them.

Modified is used where the substance

of a previously published position is being

changed. Thus, if a prior ruling held that a

principle applied to A but not to B, and the

new ruling holds that it applies to both A

and B, the prior ruling is modified because

it corrects a published position. (Compare

with amplified and clarified, above).

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

This term is most commonly used in a ruling

that lists previously published rulings that

are obsoleted because of changes in laws or

regulations. A ruling may also be obsoleted

because the substance has been included in

regulations subsequently adopted.

Revoked describes situations where the

position in the previously published ruling

is not correct and the correct position is

being stated in a new ruling.

Superseded describes a situation where

the new ruling does nothing more than

restate the substance and situation of a

previously published ruling (or rulings).

Thus, the term is used to republish under

the 1986 Code and regulations the same

position published under the 1939 Code

and regulations. The term is also used

when it is desired to republish in a single

ruling a series of situations, names, etc.,

that were previously published over a

period of time in separate rulings. If the

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

terms is used. For example, modified and

superseded describes a situation where the

substance of a previously published ruling

is being changed in part and is continued

without change in part and it is desired to

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

self contained. In this case, the previously

published ruling is first modified and then,

as modified, is superseded.

Supplemented is used in situations in

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

countries, is published in a ruling and that

list is expanded by adding further names

in subsequent rulings. After the original

ruling has been supplemented several

times, a new ruling may be published that

includes the list in the original ruling and

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

Suspended is used in rare situations to

show that the previous published rulings

will not be applied pending some future

action such as the issuance of new or

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

Abbreviations

The following abbreviations in current use

and formerly used will appear in material

published in the Bulletin.

A—Individual.

Acq.—Acquiescence.

B—Individual.

BE—Beneficiary.

BK—Bank.

B.T.A.—Board of Tax Appeals.

C—Individual.

C.B.—Cumulative Bulletin.

CFR—Code of Federal Regulations.

CI—City.

COOP—Cooperative.

Ct.D.—Court Decision.

CY—County.

D—Decedent.

DC—Dummy Corporation.

DE—Donee.

Del. Order—Delegation Order.

DISC—Domestic International Sales Corporation.

DR—Donor.

E—Estate.

EE—Employee.

E.O.—Executive Order.

ER—Employer.

Bulletin No. 2020–26

ERISA—Employee Retirement Income Security Act.

EX—Executor.

F—Fiduciary.

FC—Foreign Country.

FICA—Federal Insurance Contributions Act.

FISC—Foreign International Sales Company.

FPH—Foreign Personal Holding Company.

F.R.—Federal Register.

FUTA—Federal Unemployment Tax Act.

FX—Foreign corporation.

G.C.M.—Chief Counsel’s Memorandum.

GE—Grantee.

GP—General Partner.

GR—Grantor.

IC—Insurance Company.

I.R.B.—Internal Revenue Bulletin.

LE—Lessee.

LP—Limited Partner.

LR—Lessor.

M—Minor.

Nonacq.—Nonacquiescence.

O—Organization.

P—Parent Corporation.

PHC—Personal Holding Company.

PO—Possession of the U.S.

PR—Partner.

PRS—Partnership.

PTE—Prohibited Transaction Exemption.

Pub. L.—Public Law.

REIT—Real Estate Investment Trust.

Rev. Proc.—Revenue Procedure.

Rev. Rul.—Revenue Ruling.

S—Subsidiary.

S.P.R.—Statement of Procedural Rules.

Stat.—Statutes at Large.

T—Target Corporation.

T.C.—Tax Court.

T.D.—Treasury Decision.

TFE—Transferee.

TFR—Transferor.

T.I.R.—Technical Information Release.

TP—Taxpayer.

TR—Trust.

TT—Trustee.

U.S.C.—United States Code.

X—Corporation.

Y—Corporation.

Z—Corporation.

June 22, 2020

Numerical Finding List1

Bulletin 2020–26

AOD:

2020-1, 2020-12 I.R.B. 521

2020-2, 2020-14 I.R.B. 558

2020-3, 2020-17 I.R.B. 663

Announcements:

2020-1, 2020-5 I.R.B. 552

2020-2, 2020-15 I.R.B. 609

2020-3, 2020-15 I.R.B. 655

2020-4, 2020-17 I.R.B. 667

2020-5, 2020-19 I.R.B. 796

2020-6, 2020-23 I.R.B. 911

2020-7, 2020-25 I.R.B. 959

Notices:

2020-1, 2020-2 I.R.B. 290

2020-2, 2020-3 I.R.B. 327

2020-3, 2020-3 I.R.B. 330

2020-4, 2020-4 I.R.B. 380

2020-5, 2020-4 I.R.B. 380

2020-6, 2020-7 I.R.B. 411

2020-7, 2020-7 I.R.B. 411

2020-8, 2020-7 I.R.B. 415

2020-9, 2020-7 I.R.B. 417

2020-10, 2020-10 I.R.B. 456

2020-11, 2020-11 I.R.B. 492

2020-12, 2020-11 I.R.B. 495

2020-13, 2020-11 I.R.B. 502

2020-14, 2020-13 I.R.B. 555

2020-15, 2020-14 I.R.B. 559

2020-16, 2020-14 I.R.B. 559

2020-17, 2020-15 I.R.B. 590

2020-18, 2020-15 I.R.B. 590

2020-19, 2020-15 I.R.B. 591

2020-20, 2020-16 I.R.B. 660

2020-21, 2020-16 I.R.B. 660

2020-22, 2020-17 I.R.B. 664

2020-23, 2020-18 I.R.B. 742

2020-26, 2020-18 I.R.B. 744

2020-27, 2020-19 I.R.B. 778

2020-28, 2020-19 I.R.B. 781

2020-30, 2020-19 I.R.B. 781

2020-31, 2020-19 I.R.B. 783

2020-32, 2020-21 I.R.B. 837

2020-34, 2020-21 I.R.B. 838

2020-36, 2020-21 I.R.B. 840

2020-25, 2020-22 I.R.B. 863

2020-29, 2020-22 I.R.B. 864

2020-33, 2020-22 I.R.B. 868

2020-37, 2020-23 I.R.B. 900

2020-38, 2020-23 I.R.B. 903

Notices:—Continued

Revenue Rulings:

2020-35, 2020-25 I.R.B. 948

2020-40, 2020-25 I.R.B. 952

2020-41, 2020-25 I.R.B. 954

2020-39, 2020-26 I.R.B. 984

2020-42, 2020-26 I.R.B. 986

2020-44, 2020-26 I.R.B. 989

2020-1, 2020-3 I.R.B. 296

2020-2, 2020-3 I.R.B. 298

2020-3, 2020-3 I.R.B. 409

2020-4, 2020-4 I.R.B. 444

2020-5, 2020-5 I.R.B. 454

2020-6, 2020-11 I.R.B. 490

2020-7, 2020-12 I.R.B. 522

2020-9, 2020-15 I.R.B. 563

2020-10, 2020-15 I.R.B. 565

2020-8, 2020-19 I.R.B. 775

2020-11, 2020-19 I.R.B. 776

2020-13, 2020-26 I.R.B. 965

Proposed Regulations:

REG-107431-19, 2020-3 I.R.B. 332

REG-122180-18, 2020-3 I.R.B. 342

REG-100956-19, 2020-4 I.R.B. 383

REG-125710-18, 2020-5 I.R.B. 554

REG-132741-17, 2020-10 I.R.B. 458

REG-100814-19, 2020-12 I.R.B. 542

REG-132529-17, 2020-12 I.R.B. 667

REG-106013-19, 2020-18 I.R.B. 757

REG-117138-17, 2020-19 I.R.B. 796

REG-106864-18, 2020-20 I.R.B. 805

REG-113295-18, 2020-22 I.R.B. 875

REG-104591-18, 2020-23 I.R.B. 911

REG-100320-20, 2020-25 I.R.B. 960

REG-109755-19, 2020-25 I.R.B. 994

Revenue Procedures:

Treasury Decisions:

9886, 2020-2 I.R.B. 285

9887, 2020-3 I.R.B. 302

9888, 2020-3 I.R.B. 306

9891, 2020-8 I.R.B. 419

9892, 2020-8 I.R.B. 439

9893, 2020-9 I.R.B. 449

9895, 2020-15 I.R.B. 565

9896, 2020-18 I.R.B. 681

9897, 2020-23 I.R.B. 882

9898, 2020-25 I.R.B. 935

2020-1, 2020-01 I.R.B. 1

2020-2, 2020-01 I.R.B. 107

2020-3, 2020-01 I.R.B. 131

2020-4, 2020-01 I.R.B. 148

2020-5, 2020-01 I.R.B. 241

2020-7, 2020-01 I.R.B. 281

2020-9, 2020-02 I.R.B. 294

2020-10, 2020-02 I.R.B. 295

2020-11, 2020-06 I.R.B. 406

2020-8, 2020-08 I.R.B. 447

2020-12, 2020-11 I.R.B. 511

2020-13, 2020-11 I.R.B. 515

2020-17, 2020-12 I.R.B. 539

2020-18, 2020-15 I.R.B. 592

2020-14, 2020-16 I.R.B. 661

2020-22, 2020-18 I.R.B. 745

2020-23, 2020-18 I.R.B. 749

2020-24, 2020-18 I.R.B. 750

2020-26, 2020-18 I.R.B. 753

2020-25, 2020-19 I.R.B. 785

2020-28, 2020-19 I.R.B. 792

2020-20, 2020-20 I.R.B. 801

2020-27, 2020-20 I.R.B. 803

2020-29, 2020-21 I.R.B. 859

2020-19, 2020-22 I.R.B. 871

2020-21, 2020-22 I.R.B. 872

2020-30, 2020-22 I.R.B. 873

2020-15, 2020-23 I.R.B. 905

2020-33, 2020-25 I.R.B. 956

2020-34, 2020-26 I.R.B. 990

A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2018–27 through 2018–52 is in Internal Revenue Bulletin

2018–52, dated December 27, 2018.

June 22, 2020

Bulletin No. 2020–26

Finding List of Current Actions on

Previously Published Items1

Bulletin 2020–26

A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2018–27 through 2018–52 is in Internal Revenue Bulletin

2018–52, dated December 27, 2018.

Bulletin No. 2020–26

iii

June 22, 2020

Internal Revenue Service

Washington, DC 20224

Official Business

Penalty for Private Use, $300

INTERNAL REVENUE BULLETIN

The Introduction at the beginning of this issue describes the purpose and content of this publication. The weekly Internal Revenue

Bulletins are available at www.irs.gov/irb/.

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If you have comments concerning the format or production of the Internal Revenue Bulletin or suggestions for improving it,

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This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.