Bulletin No. 2020–35

HIGHLIGHTS

OF THIS ISSUE





Bulletin No. 2020–35

August 24, 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

REG-132434-17, page 508.

These proposed regulations interpret new section 7602(f)’s

restrictions on the non-governmental persons (contractors)

to whom the IRS may provide books, papers, records, or

other data for the sole purpose of providing expert evaluation and assistance to the IRS. Ancillary contractors, such as

court reporters, translators or interpreters, photocopy services, providers of data processing programs or equipment,

litigation support services, and other similar contractors may

continue to assist the IRS in its examinations of taxpayers,

but the IRS will not hire certain types of non-governmental

attorneys for these purposes. No person other than an officer or employee of the IRS or IRS Chief Counsel may, on

behalf of the IRS, question a witness under oath as part of

an examination, but IRS contractors who are court reporters

or foreign language interpreters may continue to play their

customary roles in asking a witness certain non-substantive

questions in a summons interview.

ADMINISTRATIVE, EXCISE TAX

Notice 2020-55, page 467.

Notice 2020-55 provides expanded disaster relief, in the

form of postponing until October 31, 2020, certain Federal excise tax filing and payment deadlines, and associated

interest, penalties, and additions to tax, for taxpayers who

owe a federal excise tax for sales of sport fishing or archery

equipment for the first quarter of 2020.

EMPLOYEE PLANS

Notice 2020-61, page 468.

The notice provides guidance regarding the special rules

relating to single-employer defined benefit pension plans under § 3608 of the CARES Act. Under these special rules, a

Finding Lists begin on page ii.

contribution that would otherwise be required to be made to

such a plan during 2020 is required to be made by January

1, 2021, and special interest adjustment rules apply to a

contribution that is made after the otherwise applicable deadline. In addition, an employer may elect to apply the benefit

restrictions for underfunded plans under § 436 of the Code

for the 2020 plan year (or a fiscal plan year that contains any

part of 2020) using the plan’s funded status for the last plan

year ending in 2019.

Notice 2020-62, page 476.

Notice 2020-62 modifies the two safe harbor explanations in

Notice 2018-74, 2018-40 I.R.B. 529, that may be provided

to recipients of eligible rollover distributions to satisfy the

notice requirements under § 402(f). The safe harbor explanations, as modified by this notice, take into consideration certain legislative changes, including changes related to the Setting Every Community Up for Retirement Enhancement Act of

2019 (“SECURE Act”), and include other clarifying changes.

INCOME TAX

Announcement 2020-13, page 492.

A copy of the Competent Authority Arrangement entered into by the competent authorities of the United

States of America and Switzerland, arranging the implementation of the arbitration process provided for in

paragraphs 6 and 7 of Article 25 of the Convention

Between the United States of America and the Swiss

Confederation for the Avoidance of Double Taxation

with respect to Taxes on Income.

Notice 2020-63, page 491.

This notice modifies Notice 2006-09, 2006-6 I.R.B. 413 and

Notice 2008-33, 2008-12 I.R.B. 642, 2008, by providing a

new address to which a vehicle manufacturer (or, in the case

of a foreign vehicle manufacturer, its domestic distributor)

must send vehicle certifications and quarterly reports.

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.

August 24, 2020 

Bulletin No. 2020–35

Part III

Relief for Taxpayers

Affected by Ongoing

Coronavirus Disease

Pandemic, Related to Sport

Fishing Equipment and

Bows and Arrows Excise

Tax Filing and Payment

Deadlines

Notice 2020-55

SECTION 1. PURPOSE

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).” Pursuant to the Emergency Declaration, this notice provides relief under section 7508A(a) of the Internal

Revenue Code (Code) for the persons described in section 3 of this notice that the

Secretary of the Treasury has determined

to be affected by the COVID-19 emergency. Notice 2020-48, 2020-29 IRB 72 (July

13, 2020), previously postponed certain

federal tax filing and payment deadlines

related to second quarter 2020 sport fishing equipment and bows and arrows excise taxes.

SECTION 2. BACKGROUND

Section 7508A of the Code 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 § 165(i)(5)(A) of the Code.

Pursuant to § 7508A(a), a period of up to

one year may be disregarded in determin-

Bulletin No. 2020–35

ing whether the performance of those acts

is timely under the internal revenue laws.

Section 40.0-1(a) of the Excise Tax

Procedural Regulations applies the part 40

procedural regulations to various excise

taxes including those imposed on sporting

goods by chapter 32, subchapter D, part

I of the Code. Section 40.6011(a)-1(a)

(1) provides that the return of any tax to

which part 40 applies must be made on

Form 720 (Quarterly Federal Excise Tax

Return) according to the instructions applicable to the form. The requirement for

filing a return under part 40 applies separately to each tax listed by IRS Number

on Form 720.

The federal sporting goods excise taxes

are imposed by § 4161(a) on sport fishing

equipment and by § 4161(b) on bows and

arrows. These taxes are reported on Form

720, Part II, IRS Numbers: 41 (sport fishing equipment (other than fishing rods

and fishing poles)), 110 (fishing rods and

fishing poles), 42 (electric outboard motors), 114 (fishing tackle boxes), 44 (bows,

quivers, broadheads, and points), and 106

(arrow shafts) (hereafter the “sport fishing

and archery equipment numbers”). Under

§ 40.6011(a)-1(a), an entry for each IRS

Number on Form 720 constitutes a separate return. The Form 720 due on April

30, 2020, covers the first calendar quarter

(January, February, March) of the year

2020.

SECTION 3. GRANT OF RELIEF

Any person (as defined in § 7701(a)

(1) of the Code) with a federal sporting

goods excise tax payment due and the requirement to file a return under the sport

fishing and archery equipment numbers

on Part II of Form 720, on April 30, 2020

(the first quarter of 2020), is determined to

be affected by the COVID-19 emergency

for purposes of the relief described in this

section 3 (Affected Taxpayer).

For an Affected Taxpayer, the April

30, 2020, due date for filing Form 720 for

the sport fishing and archery equipment

numbers and making corresponding federal sporting goods excise tax payments

is automatically postponed to October 31,

2020. This postponement of the due date

467

is automatic; Affected Taxpayers do not

have to call the IRS or file any extension

forms.

An Affected Taxpayer who has already

filed a first quarter Form 720 for excise

taxes and fully paid the corresponding

excise taxes on sport fishing and archery

equipment by the normal due date (April

30, 2020) may disregard this notice and

does not need to do anything further. An

Affected Taxpayer who has already filed a

first quarter Form 720 for excise taxes on

sport fishing and archery equipment but

has not fully paid such excise taxes may

pay those taxes by the postponed deadline

of October 31, 2020. An Affected Taxpayer who has not already filed its first quarter Form 720 and who takes advantage of

this postponement should file only one

Form 720 for the sport fishing and archery

equipment numbers for the first quarter of

2020 by the postponed deadline of October 31, 2020.

Any Affected Taxpayer that, pursuant

to this notice, files its first quarter Form

720 for the sport fishing and archery

equipment numbers after August 7, 2020,

but by October 31, 2020, must adhere to

the following instructions to take advantage of the postponed deadline of October

31, 2020, to file and pay such excise taxes:

• Any Affected Taxpayer that has not

already filed a first quarter Form 720

that wants to take advantage of the

postponement must file a paper Form

720, rather than an electronic Form

720, to file its return for excise taxes

on sport fishing and archery equipment. An Affected Taxpayer should

file only one Form 720 for the sport

fishing and archery equipment numbers for the first quarter of 2020 by

the postponed deadline of October

31, 2020. In addition, an Affected

Taxpayer must write “Notice 202055” on the top-center of the Form 720

on which its first quarter 2020 excise

taxes on sport fishing and archery

equipment are reported after August

7, 2020.

• If any Affected Taxpayer that wants to

take advantage of this postponement

in filing is required to file a Form 720

for excise taxes other than for sport

August 24, 2020

fishing and archery equipment on

April 30, 2020, and has not done so,

such an Affected Taxpayer should file

a Form 720 reporting such excise taxes as soon as possible with the sport

fishing and archery lines blank, to

stop the further accrual of late filing

penalties.

• Any Affected Taxpayer that wants to

take advantage of the postponement

must not combine first quarter (the

calendar quarter containing January, February, and March 2020) with

second or third quarter (the calendar

quarters containing April, May, and

June, and July, August, and September 2020, respectively) excise taxes

onto one Form 720. Affected Taxpayers who are seeking the second quarter relief provided by Notice 2020-48

should follow the filing procedures

described in that notice. Affected

Taxpayers must file separate Forms

720 for the first, second, and third

quarters by October 31, 2020. Moreover, first, second, and third quarter

Form 720 excise tax payments must

be made separately, and Affected

Taxpayers should clearly designate

payments with respect to the type of

tax and tax period for which the payment is made.

As a result of the postponement of the

April 30, 2020, due date for timely filing

Forms 720 for the excise taxes on sport

fishing and archery equipment and timely making such excise tax payments to

October 31, 2020, the period beginning

on May 1, 2020, and ending on October 31, 2020, will be disregarded in the

calculation of any interest, penalty, or

addition to tax for failure to file a Form

720 for the excise taxes on sport fishing

and archery equipment or to pay such excise taxes shown on that form and postponed by this notice. Interest, penalties,

and additions to tax with respect to such

postponed Forms 720 and payments will

begin to accrue on November 1, 2020, if

the taxes are then unpaid or the Forms are

not timely filed.

Affected Taxpayers that have been

assessed penalties and interest with respect to untimely filing or payment for

first quarter 2020 sport fishing and archery equipment excise taxes may request abatement pursuant to this notice.

August 24, 2020

If an Affected Taxpayer receives a late

filing or late payment penalty notice

from the IRS regarding interest, penalties, or additions to tax calculated for

the period prior to November 1, 2020,

with respect to first quarter sport fishing and archery equipment excise taxes,

the Affected Taxpayer should call the

telephone number listed on the applicable IRS billing notice to have any such

amount abated.

SECTION 4. CONTACT

INFORMATION

For further information regarding this

notice, you may call the COVID-19 Disaster Relief Hotline at (202) 317-5436

(not a toll-free number).

Special Funding and

Benefit Limitation Rules for

Single-Employer Defined

Benefit Pension Plans

under the CARES Act

Notice 2020-61

I. Purpose

This notice provides guidance on the

special rules relating to funding of single-employer defined benefit pension

plans, and related benefit limitations, under § 3608 of the Coronavirus Aid, Relief,

and Economic Security Act (CARES Act),

Pub. L. No. 116-136 (134 Stat. 281).

II. Background

A. Minimum funding rules for single

employer defined benefit plans

1. General timing requirements

Section 412 of the Internal Revenue

Code (Code) provides that a sponsor of

a qualified defined benefit plan (other

than a multiemployer plan as defined in

§ 414(f) or a CSEC plan as defined in

§ 414(y)) must make contributions to or

under the plan for the plan year that, in

the aggregate, are not less than the min-

468

imum required contribution determined

under § 430 for the plan year. Section

4971(a) imposes an excise tax on an

employer that sponsors a plan subject to

§ 412 that has an unpaid minimum required contribution within the meaning

of § 4971(c)(4) as of the end of the plan

year.

Section 430(j)(1) provides that the

due date for the payment of any minimum required contribution for a plan year

is 8½ months after the close of the plan

year. Section 430(j)(2) provides that any

payment made on a date other than the

valuation date for the plan year must be

adjusted for interest accruing for the period between the valuation date and the

payment date, determined using the plan’s

effective interest rate under § 430(h)(2)

(A) for the plan year.

Section 430(j)(3) provides that if the

plan had a funding shortfall (as defined

in § 430(c)(4)) for the preceding plan

year, then the plan sponsor must pay four

quarterly installments toward the required

minimum contribution for the plan year.

The due dates for the installments are

April 15, July 15, and October 15 of the

plan year, and January 15 of the following year (adjusted for a plan year that is

not a calendar year under § 1.430(j)-1(c)

(6)). Section 430(j)(3)(D)(i) provides that

each quarterly installment is 25 percent of

the required annual payment defined in

§ 430(j)(3)(D)(ii). Section 430(j)(3)(A)

provides that if a quarterly installment is

paid after the due date for that installment,

then the interest rate that applies for the

period of underpayment (in lieu of the interest rate that would apply under § 430(j)

(2)) is the plan’s effective interest rate plus

5 percentage points.

Section 430(g)(4)(A) provides that if a

plan sponsor makes a contribution to the

plan after the valuation date for the plan

year in which the contribution is made,

and the contribution is for a preceding

plan year, the contribution is taken into

account as an asset of the plan for the plan

year in which it is made, except that only

the present value (determined as of the

valuation date) of that contribution may

be taken into account. For this purpose,

the present value of the contribution is determined using the effective interest rate

for the preceding plan year for which the

contribution is made.

Bulletin No. 2020–35

2. CARES Act changes

Section 3608(a)(1) of the CARES Act

provides that any minimum required contribution that would otherwise be due under § 430(j) of the Code (and § 303(j) of

the Employee Retirement Income Security Act, Pub. L. 93-406, as amended (ERISA)) during calendar year 2020 (including

quarterly installments under § 430(j)(3) of

the Code and § 303(j)(3) of ERISA) are

due on January 1, 2021. Section 3608(a)

(2) of the CARES Act provides that those

contributions and installments are to be

increased with interest accruing for the

period between the original due date for

the contribution or installment and the

date of the payment at the effective interest rate for the plan for the plan year that

includes the payment date.

B. Benefit limitations for underfunded

defined benefit plans

1. General rules regarding benefit

limitations

Section 436 of the Code provides limits on benefits and benefit accruals under

single-employer defined benefit pension

plans, which are applied based on the

plan’s adjusted funding target attainment

percentage (AFTAP) for a plan year. Section 436(b) provides generally that unpredictable contingent event benefits resulting from an event may not be paid if,

taking into account the payment of those

benefits, the plan’s AFTAP would be less

than 60 percent. Section 436(c) provides

generally that no amendment increasing

liabilities may take effect if, after taking

into account that amendment, the plan’s

AFTAP would be less than 80 percent.

Section 436(d) provides generally that

the plan may not pay certain accelerated

forms of benefit (such as a single-sum distribution) if the plan’s AFTAP is less than

80 percent. Section 436(e) provides generally that benefit accruals must cease if

the plan’s AFTAP is less than 60 percent.

2. CARES Act changes

Section 3608(b) of the CARES Act

provides that for purposes of applying

1

§ 436 of the Code (and § 206(g) of ERISA), a plan sponsor may elect to treat the

plan’s AFTAP for the last plan year ending before January 1, 2020, as the AFTAP

for plan years that include calendar year

2020.

C. Other rules related to contributions

and benefit limitations

Under § 430(f), the plan sponsor of

a defined benefit plan that is not a multiemployer plan may elect to maintain a

prefunding balance that may be used, at

the plan sponsor’s election, to offset the

minimum required contribution for a plan

year.1 Under § 430(f)(6)(B)(i), a plan

sponsor may elect to add contributions

that exceed the minimum required contribution for a plan year (adjusted with interest using the effective interest rate for the

plan year in accordance with § 430(f)(6)

(B)(ii)) to the plan’s prefunding balance.

A plan sponsor may also elect to reduce

the plan’s prefunding balance or the funding standard carryover balance as provided in § 430(f)(5). Section 1.430(f)‑1(f)(1)

(i) generally provides that any election

under § 430(f) by the plan sponsor must

be made by providing written notification

of the election to the plan’s enrolled actuary and the plan administrator. Section

1.430(f)-1(f)(2)(i) generally provides that

any election under § 430(f) with respect

to a plan year must be made no later than

the last date for making the minimum

required contribution for the plan year

as described in § 430(j)(1), or such later

date as prescribed in guidance published

in the Internal Revenue Bulletin. However, § 1.430(f)‑1(f)(2)(iii) provides that any

election to reduce the prefunding balance

or funding standard carryover balance for

a plan year (for example, in order to avoid

or terminate a benefit restriction under §

436) must be made by the end of the plan

year to which the election relates.

Section 436(h) provides rules that apply prior to the certification of the AFTAP for a plan year by the plan’s actuary.

Under § 436(h)(1), if a benefit limitation

applied to a plan on the last day of the preceding plan year, then the current year’s

AFTAP generally is presumed to be equal

to the prior year’s AFTAP for the period

beginning on the first day of the plan year

and ending when the plan’s enrolled actuary certifies the AFTAP for the current

plan year. Under § 436(h)(3), if (i) the

plan’s enrolled actuary has not certified

the AFTAP for the current plan year by the

first day of the 4th month of the plan year,

and (ii) the AFTAP for the prior plan year

did not result in the application of a benefit limitation for that prior plan year (but

would have resulted in the application of a

benefit limitation had that AFTAP been 10

percentage points lower), then the AFTAP

for the current plan year is presumed to be

equal to 10 percentage points less than the

AFTAP for the prior plan year, for the period beginning on that first day of the fourth

month and ending when the enrolled actuary of the plan certifies the plan’s AFTAP

for the current plan year. Under § 436(h)

(2), if no certification of the AFTAP for

the current plan year is made before the

first day of the 10th month of that year,

then the AFTAP for the current plan year

is presumed to be less than 60 percent as

of that first day.

Sections 436(b)(2) and (c)(2) provide

rules that allow a plan sponsor to avoid

or terminate benefit restrictions under

§ 436(b) or (c) by making an additional

contribution of a certain amount to the

plan. Section 1.436-1(f) provides rules for

these contributions, which are referred to

as § 436 contributions. Section 1.436-1(f)

(2)(i)(A) provides that any § 436 contribution made by a plan sponsor on a date

other than the valuation date for the plan

year must be adjusted with interest at the

plan’s effective interest rate for the plan

year. If the plan’s effective interest rate for

the plan year has not been determined at

the time of the contribution, then this interest adjustment must be made using the

highest of the three segment rates as applicable for the plan year. In such a case, if

the effective interest rate for the plan year

is subsequently determined to be less than

that highest rate, the excess is recharacterized as an employer contribution taken

into account under § 430 for the current

plan year.

The regulations under § 436 address

the calculation of a plan’s AFTAP. Section

1.436-1(h)(4)(iii) provides rules relating

to changes in a plan’s AFTAP after it has

Similar elections to maintain a funding standard carryover balance and to use that balance to offset the minimum required contribution are available to the plan sponsor.

Bulletin No. 2020–35

469

August 24, 2020

been certified, and the effect of such a

change depends on whether the change is

material (within the meaning of § 1.4361(h)(4)(iii)(B)) or immaterial (within the

meaning of § 1.436-1(h)(4)(iii)(C)). In

general, a material change in AFTAP is

defined as a change under which plan operations would have been different based

on the subsequent AFTAP determination,

and an immaterial change in AFTAP is

defined as a change that is not material.

Under § 1.436-1(h)(4)(iv)(A), a material

change in a plan’s AFTAP will cause a

plan to fail to comply with § 401(a).

Section 1.436-1(h)(4)(iii)(C) provides

a special rule that, subject to certain conditions, deems a change in a plan’s AFTAP

to be immaterial (even if the change would

otherwise be material) if the change results

from an event specified in § 1.436‑1(h)(4)

(iii)(C)(1) through (8). Section 1.436-1(h)

(4)(iii)(C)(9) provides authority for the

expansion of the list of events for which

a resulting change in AFTAP may be

deemed immaterial through publication

of guidance in the Internal Revenue Bulletin. Deemed immaterial treatment under

§ 1.436-1(h)(4)(iii)(C) with respect to an

event that results in a change in AFTAP

is conditioned on the AFTAP being recertified as soon as reasonably practicable

after the event. The effect of this deemed

immaterial treatment is that the change in

the plan’s AFTAP will not cause the plan

to fail to comply with § 401(a) merely because of the change, provided that the plan

administrator reflects the new AFTAP in

plan operations on a prospective basis beginning with the date of the recertification.

Section 404 provides rules regarding

the deductibility of employer contributions to an employees’ trust or annuity

plan and compensation under a deferred

payment plan. Under § 404(a)(1)(A), contributions paid to the trust of a qualified

defined benefit pension plan are deductible in the taxable year when paid, subject

to the applicable limits. Under § 404(a)

(6), a taxpayer making a contribution in

a taxable year is deemed to have made the

contribution on the last day of the preceding taxable year if the payment is on account of that preceding taxable year and

is made not later than the time prescribed

by law for filing the return for that preceding taxable year (including extensions

thereof).

August 24, 2020

Under § 101 of Reorganization Plan No.

4 of 1978 (43 FR 47713) and § 3002(c) of

ERISA, the Secretary of the Treasury has

interpretive jurisdiction over the subject

matter addressed in this notice for purposes of ERISA, as well as the Code. Thus,

the provisions of this notice pertaining to

§§ 430 and 436 of the Code also apply for

purposes of §§ 303 and 206(g) of ERISA.

III. Questions & Answers

The following questions and answers

provide guidance regarding § 3608 of the

CARES Act. To the extent the instructions

for Schedule SB, “Single-Employer Defined Benefit Plan Actuarial Information”

of Form 5500, “Annual Return/Report of

Employee Benefit Plan” are inconsistent

with this guidance, this guidance supersedes those instructions.

A. Extended deadline for contributions

and interest adjustments

Q-1: To which plans does the extended

contribution due date of January 1, 2021,

under § 3608(a)(1) of the CARES Act, apply?

A-1: The extended contribution due

date of January 1, 2021, applies to a defined benefit plan for which the minimum

required contribution is determined under

§ 430. Thus, this extended contribution

due date of January 1, 2021, does not apply to a multiemployer plan, a CSEC plan,

a fully-insured plan described in § 412(e)

(3), or a money purchase pension plan.

Q-2: How is a contribution adjusted for

interest between the valuation date and the

payment date for the contribution, taking

into account the interest adjustment rules

of § 3608(a)(2) of the CARES Act?

A-2: To determine the portion of the

minimum required contribution for a plan

year that is satisfied by a contribution,

§ 430(j)(2) of the Code and § 1.430(j)1(b)(4)(i) provide that the contribution

is adjusted for interest for the period between the valuation date for the plan year

and the payment date for the contribution,

at the plan’s effective interest rate for

the plan year. Under § 3608(a)(2) of the

CARES Act, any payment that is made

after the original due date for the contribution and by the extended due date under

§ 3608(a)(1) must be increased for the pe-

470

riod between the original due date and the

payment date at the effective interest rate

for the plan year that includes the payment

date. Thus, if a contribution for a plan

year were to be made during this period,

the amount of the contribution must be

larger to account for interest (determined

using the plan’s effective interest rate for

the plan year that includes the payment

date) for the period between the original

due date and the payment date in order to

satisfy the minimum required contribution for the plan year to the same extent

as a contribution made on the original due

date. The following example illustrates

the application of the interest adjustment

described in this A-2:

(a) Plan A has a plan year that is the

calendar year and has a 2019 minimum

required contribution, calculated as of

the January 1, 2019, valuation date, of

$1,000,000. The effective interest rate for

the 2019 plan year is 5.75%, and the effective interest rate for the 2020 plan year

is 5.65%. Plan A had no funding shortfall

for 2018 (so there are no quarterly installment requirements for 2019), and the plan

sponsor made no contributions for 2019

(and no elections to use a funding standard

carryover balance or prefunding balance)

before September 15, 2020. The actuary

takes into account February 29, 2020, in

counting the number of days in 2020 for

purposes of calculating interest.

(b) In the absence of § 3608(a) of the

CARES Act, the final contribution for the

2019 plan year would have been due on

September 15, 2020. A final contribution

of $1,100,009 made on September 15,

2020, would satisfy the 2019 minimum

required contribution. This is because a

contribution of $1,100,009 made on that

date, discounted using the 2019 effective

interest rate to January 1, 2019, would

equal the $1,000,000 minimum required

contribution ($1,100,009 ÷1.0575(258/366 +

365/365)

= $1,000,000).

(c) Pursuant to § 3608(a)(1) of the

CARES Act, the plan sponsor has until January 1, 2021, to satisfy the 2019

minimum required contribution for Plan

A. If, on December 31, 2020, the plan

sponsor were to make a single contribution necessary to satisfy the 2019 minimum required contribution for Plan A, the

contribution would be $1,117,827. This

is because a contribution of $1,117,827

Bulletin No. 2020–35

made on December 31, 2020, discounted

using the 2020 effective interest rate back

to September 15, 2020, and the 2019 effective interest rate from September 15,

2020, to January 1, 2019, would equal

the $1,000,000 minimum required contribution ($1,117,827 ÷ 1.0565(107/366) ÷

1.0575(258/366 + 365/365) = $1,000,000).

Q-3: What is the result if the contribution that the plan sponsor makes is less

than the amount that was due on the original due date for the minimum required

contribution, as increased with interest

pursuant to § 3608(a)(2) of the CARES

Act?

A-3: If, after the original due date for

the minimum required contribution for a

plan year, the plan sponsor makes a contribution that is less than the amount that

was due on that date, as adjusted for additional interest to account for the period

between the original due date and the date

of payment of the contribution (at the effective interest rate for the plan year in

which the payment is made), then a portion of the minimum required contribution

for that plan year would remain unpaid.

The unpaid portion of the minimum required contribution, determined as of the

valuation date and based on contributions

made on or before January 1, 2021, with

the contributions discounted for interest to

the valuation date as described in A-2 of

this notice, would give rise to an unpaid

minimum required contribution within the

meaning of § 4971(c)(4) of the Code that

would be subject to an excise tax under

§ 4971(a). Furthermore, a contribution

made after January 1, 2021, to satisfy that

unpaid minimum required contribution

must be adjusted for interest for the period between the date that the contribution

is made and the valuation date at the effective interest rate for the plan year for

which the contribution is made (with additional interest as required to reflect any

late quarterly installments for the plan

year). The following example illustrates

the situation described in this A-3:

The facts are the same as in the example in A-2 of this notice, except that

the plan sponsor makes a contribution of

$1,100,009 on December 31, 2020, and

makes no other contributions by January

1, 2021. The $1,100,009 contribution is

discounted using the 2020 effective interest rate back to September 15, 2020,

Bulletin No. 2020–35

and the 2019 effective interest rate from

September 15, 2020, to January 1, 2019,

resulting in $984,061 toward satisfaction

of the 2019 plan year minimum required

contribution ($1,100,009 ÷ 1.0565(107/366) ÷

1.0575(258/366 + 365/365) = $984,061). Because

the contribution is discounted for a longer

period, this amount of the discounted contribution is not enough to satisfy the minimum required contribution of $1,000,000

as of January 1, 2019, resulting in an

unpaid minimum required contribution

of $15,939 ($1,000,000 - $984,061=

$15,939). The $15,939 unpaid minimum

required contribution is subject to excise

tax under § 4971(a).

Q-4: Does the extended due date under

§ 3608(a) of the CARES Act apply to contributions in excess of the amount needed

to satisfy the minimum required contribution?

A-4: Yes, if the contribution deadline

under § 430(j)(1) of the Code for a plan

year is during 2020, a contribution in excess of the amount needed to satisfy the

minimum required contribution for the

plan year that is made by January 1, 2021,

may be designated as a contribution for

that plan year. The present value of the excess contributions for a plan year, which

can be used to increase the prefunding

balance, is determined using the interest

rate adjustment described in A-2 of this

notice. In accordance with § 1.430(f)-1(b)

(1)(iv)(A), this present value is increased

for interest for the period between the valuation date for the plan year and the first

day of the next plan year. In general, this

increase for interest is made using the

plan’s effective interest rate for the plan

year for which the contributions are made.

However, pursuant to § 1.430(f)-1(b)(3)

(iii), this present value is instead adjusted

using the plan’s investment experience to

the extent that the excess results from the

use of a funding balance to offset the minimum required contribution.

Q-5: How is the amount of a quarterly installment determined, if the extended

due date under § 3608(a) of the CARES

Act applies to the installment?

A-5: Section 3608(a)(2) of the CARES

Act specifies that, to determine the

amount of a quarterly installment due by

the extended due date under § 3608(a)(1)

of the CARES Act of January 1, 2021, the

amount of that installment is increased

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from the installment’s original due date to

the payment date at the effective interest

rate for the plan year that includes the date

the quarterly installment is paid. Section

1.430(j)-1(c)(3)(ii) provides that if a contribution is made before the due date for

the required installment to which it is allocated, then the amount credited toward

that installment includes interest on the

contribution from the date of the contribution to the due date for the installment

(at the plan’s effective interest rate for

the plan year for which the installment is

paid). The following example illustrates

the application of the interest adjustment

described in this A-5:

(a) The facts are the same as in the example in A-2 of this notice. In addition,

for 2020, Plan A has required quarterly

installments of $250,000.

(b) In the absence of § 3608(a)(1) of

the CARES Act, the first quarterly installment for the 2020 plan year would be due

on April 15, 2020. Under § 3608(a)(1) of

the CARES Act, the plan sponsor’s deadline for satisfying this quarterly installment is January 1, 2021. If the contribution is made on December 31, 2020, then

the amount necessary to satisfy the first

quarterly installment under § 3608(a)(2)

of the CARES Act is $259,954 ($250,000

× 1.0565(260/366) = $259,954).

(c) Under the extended deadline of §

3608(a) of the CARES Act, the quarterly

installments for Plan A that were originally

due July 15, 2020, and October 15, 2020,

are also now due on January 1, 2021. The

amount of these quarterly installments

would be calculated in the same manner

as shown in paragraph (b) of this example,

except that the increase for interest would

be for the period between the original due

date and the payment date.

(d) If, instead of waiting until December 31, 2020, the plan sponsor makes a

contribution of $400,000 on June 1, 2020,

then some of that contribution will satisfy

the first quarterly installment (originally

due April 15, 2020) and the balance of

that contribution will be applied towards

the second quarterly installment (originally due July 15, 2020). The portion

of the June 1 contribution that is used

to satisfy the first quarterly installment

is $251,771 ($250,000 × 1.0565(47/366) =

$251,771). Therefore, the balance of that

contribution, which will be applied to the

August 24, 2020

second quarterly installment, is $148,229

($400,000 - $251,771 = $148,229). The remaining contribution needed to satisfy the

second quarterly installment on its original due date of July 15, 2020, is $100,788

($250,000 - $148,229 × 1.0565(44/366) =

$100,788). If the contribution necessary

to satisfy that quarterly installment is not

made before that due date, but is made later in the year, then the contribution necessary to satisfy the unpaid installment must

be increased with interest at the effective

interest rate for the plan year from July 15,

2020, until it is made.

Q-6: For a quarterly installment originally due during 2020 for which the due

date is extended under § 3608(a) of the

CARES Act to January 1, 2021, what is

the result if a plan sponsor does not satisfy

that installment?

A-6: If a plan sponsor does not satisfy a

quarterly installment originally due during

2020 by the extended due date under §

3608(a) of the CARES Act of January 1,

2021, then under § 430(j)(3)(A) of the

Code, the unpaid portion of that installment is subject to a higher interest rate for

the period during which the installment

(or a portion of the installment) remains

unpaid when determining the amount of

the minimum required contribution that

is satisfied by a contribution. As a result

of § 3608(a) of the CARES Act, the period of underpayment does not begin until

January 1, 2021. The unpaid portion of the

quarterly installment as of that date, if any,

is re-determined as of the original due date

for the installment (based on contributions

made on or before January 1, 2021, and

discounted for interest as described in A-5

of this notice) and then increased from the

original due date to January 1, 2021, using

the effective interest rate for the plan year

for which the installment is due. The following examples illustrate the application

of these rules:

Example 1: (a) The facts are the same

as in the example in A-5 of this notice.

The plan sponsor of Plan A makes a contribution of $100,788 on July 15, 2020. As

shown in paragraph (d) of the example in

A-5 of this notice, the first two quarterly

installments have been satisfied by their

original due dates. The plan sponsor does

not make any additional contributions by

the extended due date of January 1, 2021.

As a result, the third quarterly installment

August 24, 2020

of $250,000 (originally due on October

15, 2020) remains unpaid as of that date,

and this unpaid installment is increased

using the effective interest rate for 2020,

resulting in an unpaid installment on January 1, 2021 of $252,945 ($250,000 ×

1.0565(78/366)).

(b) If the plan sponsor makes its next

contribution to Plan A on February 15,

2021, the first $252,945 of that contribution will be used to satisfy the missed third

quarterly installment. The interest rate

used to discount the late required installment back to the due date will include the

5 percentage point increase for the period of time from February 15, 2021, to the

extended due date of January 1, 2021, resulting in $249,809 as of January 1, 2021

($252,945 ÷ 1.1065(45/365)). Therefore, the

first $252,945 of that contribution that is

used to satisfy the third quarterly installment would result in $236,449 toward satisfaction of the 2020 plan year minimum

required contribution for Plan A ($249,809

as of January 1, 2021, divided by 1.0565).

Example 2: (a) The facts are the same

as in the first example in this A-6, except

that Plan A has a plan year that began October 1, 2019, and ended September 30,

2020, and the required quarterly installments for that plan year are $200,000.

In addition, Plan A’s effective interest

rate is 5.71% for the plan year beginning

October 1, 2019, and 5.61% for the plan

year beginning October 1, 2020. The first

three quarterly installments for the plan

year were paid by the original due dates

and the fourth quarterly installment of

$200,000 (originally due October 15,

2020) is not paid by January 1, 2021. Because this quarterly installment was not

paid by January 1, 2021, under the rules of

this A-6, the unpaid portion of the installment is increased to January 1, 2021, using the effective interest rate for the plan

year beginning October 1, 2019, resulting

in an unpaid installment on that date of

$202,387 ($200,000 × 1.0571(78/365)).

(b) Note that if the contributions made

by January 1, 2021, satisfy some, but not

all, of the fourth quarterly installment,

then the unpaid portion of that installment

would be re‑determined as of October 15,

2020, by discounting those contributions

from the date of the contribution to October 15, 2020 (using the 5.61% effective

interest rate for the plan year in which the

472

contributions are made). The resulting

unpaid quarterly installment is increased

with interest to January 1, 2021 (using

the 5.71% effective interest rate for the

plan year for which the installment is due,

rather than the 5.61% effective interest

rate for the 2020 plan year). For example,

if a contribution of $120,000 was made

on December 15, 2020, then the unpaid

portion of the quarterly installment as of

January 1, 2021, is $82,058 (($200,000 –

($120,000 ÷ 1.0561(61/365))) × 1.0571(78/365)).

Q-7: How are the interest adjustments

determined if the plan’s effective interest

rate for the plan year in which the contribution is made has not been determined at

the time the payment is made?

A-7: If the plan’s effective interest rate

for the plan year in which the contribution

is made has not been determined at the

time the payment is made, then the rules

for determining the interest rate for this

adjustment are the same as the rules for

determining the interest rate for the interest adjustment under § 1.436-1(f)(2)(i)

(A). Thus, the interest adjustment must be

made using the highest of the three segment rates for the plan year. However, if

the effective interest rate for the plan year

in which the contribution is made is subsequently determined to be less than the interest rate that was used under the preceding sentence, the difference in the present

value of the contribution as of the valuation date may be added to the prefunding

balance for the plan year. The following

example illustrates the situation described

in this A-7:

(a) The facts are the same as in the example in A-3 of this notice, except that

the plan sponsor realizes that the December 31, 2020, contribution that was made

would result in an unpaid minimum required contribution for 2019 and wishes

to make a final contribution on January 1,

2021. However, the 2021 effective interest rate is not known as of the date of the

contribution.

(b) Under this A-7, the amount necessary to avoid an unpaid minimum required

contribution for 2019 is determined using

the highest of the three segment rates for

the 2021 plan year in accordance with the

rules of § 1.436-1(f)(2)(i)(A). For purposes of this example, it is assumed that

the highest of the three segment rates for

the 2021 plan year is 5.45%. Therefore,

Bulletin No. 2020–35

the amount of the contribution needed to

avoid an unpaid minimum required contribution if made on January 1, 2021, is

$17,810 ($15,939 x 1.0575(258/366 + 365/365) x

1.0545(108/366)).

(c) Later during 2021, the 2021 effective interest rate is determined to be

5.15%. The $17,810 contribution made

on January 1, 2021, results in $15,953

($17,810 ÷ 1.0515(108/366) ÷ 1.0575(258/366 +

365/365)

) toward the 2019 minimum required

contribution. As a result, the plan sponsor

has excess contributions for 2019, which

have a present value as of January 1, 2019,

of $14 ($15,953 - $15,939). This amount,

adjusted for interest in accordance with §

1.430(f)-1(b)(1)(iv), may be added to the

prefunding balance as of January 1, 2020.

Q-8: If a plan sponsor makes a contribution for a plan year after the original

due date for the plan year, but on or before

the extended due date under § 3608(a)

of the CARES Act, how is it reported on

Schedule SB of Form 5500?

A-8: Except as provided in this A-8,

there are no special rules for reporting

contributions that are made for a plan year

after the original due date for the plan year

but on or before the extended due date under § 3608(a) of the CARES Act. Thus, a

plan’s actuary may not report contributions

on Schedule SB of Form 5500 that will be

made after the actuary signs the Schedule

SB. If any contributions are made after

the actuary signs the Schedule SB and the

Form 5500 for a plan year has been filed

but before the extended due date under §

3608(a) of the CARES Act, then the contributions may be designated as for that

prior plan year only if an amended Form

5500 that includes an amended Schedule

SB reflecting those contributions is filed.

In addition, if a plan sponsor makes a

contribution for a plan year (including a

quarterly installment) after the original

due date for that contribution but on or before the extended due date under § 3608(a)

of the CARES Act, the plan’s actuary

must attach to the Schedule SB a schedule

supporting the line 19 entry for discounted

employer contributions showing the dates

and amounts of individual contributions,

the year to which the contributions (or

portion of the individual contributions)

are applied, the effective interest rate or

rates that apply to those contributions (including the effective rate of interest for the

Bulletin No. 2020–35

plan year in which a payment subject to

§ 3608(a) of the CARES Act occurs), the

5 percentage point increase that applies

for late quarterly installments, the periods

during which each such rate applies, and

the interest-adjusted employer contributions for the plan year. This schedule must

be attached even if the contributions were

made by the due date under § 3608(a) of

the CARES Act.

Q-9: Is a contribution for a plan year

that is made after the original due date

for the plan year (but on or before the extended due date for the plan year under §

3608(a) of the CARES Act) taken into account for purposes of determining the value of plan assets for a plan year following

the plan year for which the contribution is

made?

A-9: Yes, for purposes of § 430, a contribution that is made after the original due

date for a plan year (but on or before the

extended due date for the plan year under

§ 3608(a) of the CARES Act) is taken

into account as of a valuation date for a

plan year after the plan year for which the

contribution was made. Under § 1.430(g)1(d)(1)(i), for purposes of determining the

value of plan assets, if an employer makes

a contribution to the plan after the valuation date for the current plan year and

the contribution is for an earlier plan year,

then the present value of the contribution

determined as of that valuation date is taken into account as an asset of the plan as

of the valuation date, provided the contribution is made before a specified deadline.

The specified deadline is the deadline for

contributions under § 430(j)(1) for the

plan year immediately preceding the current plan year. However, that deadline is

extended by § 3608(a)(1) of the CARES

Act. Furthermore, the interest adjustment

rules of § 3608(a)(2) of the CARES Act

(as described in A-2 of this notice) override the discounting rules that apply generally for this purpose. Note, however, under § 1.436-1(h)(4)(i)(B), certification of

the AFTAP for a plan year must not take

into account contributions that are expected to be made after the certification date.

The following example illustrates the application of these rules:

(a) Plan C has a plan year that begins on

October 1 and ends on September 30, and

a valuation date that is the first day of the

plan year. A contribution of $1,000,000 is

473

made on December 31, 2020, for the plan

year beginning on October 1, 2018.

(b) As of October 1, 2019 (the valuation

date for the plan year following the plan

year for which the December 31, 2020,

contribution was made), the present value of the contribution is included in plan

assets for purposes of § 430 as a contribution receivable. That present value is determined by discounting the contribution

from December 31, 2020, to June 15, 2020

(the original due date for the minimum required contribution for the plan year), at

the effective interest rate for the plan year

beginning October 1, 2020 (the plan year

in which the contribution is made), and further discounting the contribution from June

15, 2020, to October 1, 2019, at the effective interest rate for the plan year beginning

October 1, 2018 (the plan year for which

the contribution is made).

(c) As of October 1, 2020 (the valuation date for the second plan year following the plan year for which the December

31, 2020, contribution was made), the

present value of the contribution is included in plan assets for purposes of § 430 as

a contribution receivable. That present

value is determined by discounting the

contribution from December 31, 2020, to

October 1, 2020, at the effective interest

rate for the plan year beginning October 1,

2020 (the plan year in which the contribution is made).

Q-10: Does the extended due date under § 3608(a) of the CARES Act change

the date by which a plan sponsor may

make an election to increase a prefunding

balance or to use a prefunding balance or

a funding standard carryover balance to

offset the minimum funding requirement

for a plan year?

A-10: Yes, if the plan year is a plan

year for which the extended due date for

minimum required contributions under §

3608(a) of the CARES Act applies, then

the deadline for a plan sponsor’s election

to increase a prefunding balance or to use

a prefunding balance or a funding standard carryover balance to offset the minimum required contribution for that plan

year is extended to January 1, 2021.

Q-11: Does the extended due date under § 3608(a) of the CARES Act change

the date by which a contribution must be

made in order to be deducted for a taxable

year under § 404 of the Code?

August 24, 2020

A-11: No, the extended due date under § 3608(a) of the CARES Act does not

change the date by which a contribution

must be made in order to be deducted for

a taxable year under § 404 of the Code.

Under § 404(a)(6), a taxpayer is deemed

to have made a payment on the last day of

the preceding taxable year if the payment

is on account of that taxable year and is

made no later than the time prescribed by

law for filing the return for that taxable

year (including extensions).

B. Use of prior year AFTAP for benefit

restrictions

Q-12: May a plan sponsor make an

election under § 3608(b) of the CARES

Act (to apply the AFTAP for the last plan

year ending before January 1, 2020) for a

plan with a plan year that is not a calendar

year?

A-12: Yes, a plan sponsor may make an

election under § 3608(b) of the CARES

Act for a plan year that includes any portion of calendar year 2020. If the election

is made for such a plan year, the AFTAP

that applies for the plan year pursuant to

the election is the AFTAP certified for

the last plan year that ends on or before

December 31, 2019. For example, if a

plan sponsor makes an election under §

3608(b) of the CARES Act for a plan year

that runs from July 1, 2019, to June 30,

2020, then the AFTAP that applies to determine benefit limitations under § 436 of

the Code for that plan year is the certified

AFTAP from the plan year that ends on

June 30, 2019. In addition, that plan sponsor may separately elect to use that same

AFTAP for the plan year that begins on

July 1, 2020.

Q-13: What procedures must a plan

sponsor follow for making an election under § 3608(b) of the CARES Act?

A-13: The election described in §

3608(b) of the CARES Act must be made

using the procedures that apply for elections relating to funding balances specified in § 1.430(f)-1(f)(1)(i). Thus, the plan

sponsor must provide written notification

of the election to the plan’s actuary and

the plan administrator. However, a plan

sponsor’s election made using a different

procedure will not be treated as invalid

provided that, by September 30, 2020, the

plan sponsor complies with the require-

August 24, 2020

ment described in the first sentence of this

A-13.

Q-14: If a plan’s actuary has not certified the plan’s AFTAP for a plan year

before the plan sponsor makes an election

under § 3608(b) of the CARES Act, what

is the effect of the election for purposes of

the presumption rules of § 436(h) of the

Code?

A-14: If a plan’s actuary has not certified the plan’s AFTAP for a plan year before the plan sponsor makes the election

under § 3608(b) of the CARES Act, then

the plan sponsor’s election is treated as a

certification of the AFTAP for purposes of

the presumption rules of § 436(h) of the

Code. Thus, beginning with the date of

the election, the AFTAP for the last plan

year ending on or before December 31,

2019, applies for the plan year for which

the election is made, rather than any presumed AFTAP determined under § 1.4361(h)(1), (2), or (3). The following example

illustrates the operation of this rule:

(a) Plan B, which is not a collectively

bargained plan, has a plan year that is a

calendar year. On September 30, 2019, the

actuary for Plan B certified the 2019 AFTAP to be 82%. On April 30, 2020, before

the actuary has certified the AFTAP for

2020, the plan sponsor makes an election

under § 3608(b) of the CARES Act to apply the 2019 AFTAP to the 2020 plan year.

(b) Section 1.436-1(h)(2) applies to

the plan (because, as of April 1, 2020, the

plan’s actuary has not certified the plan’s

AFTAP for 2020 and the AFTAP for 2019

was at least 80 percent and less than 90

percent). Accordingly, under § 1.436-1(h)

(2)(iii), the presumed AFTAP for 2020 is

reduced to 72 percent beginning on April

1, 2020.

(c) The plan sponsor’s election under

§ 3608(b) of the CARES Act is treated

as a certification of the plan’s AFTAP for

the plan year. Accordingly, under § 1.4361(h)(2)(v), the 2019 AFTAP of 82 percent

is used for the plan beginning April 30,

2020.

Q-15: Is a plan’s actuary required to

certify the plan’s AFTAP for a plan year

for which the plan sponsor makes the election under § 3608(b) of the CARES Act?

A-15: A plan’s actuary generally is

required to certify the plan’s AFTAP for

a plan year for which the plan sponsor

makes the election under § 3608(b) of the

474

CARES Act. This is because, as provided

in A-18 of this notice, the certified AFTAP

generally is relevant for the next plan year.

However, if the plan sponsor makes the

election under § 3608(b) of the CARES

Act for a plan year that begins in 2019 and

ends in 2020 and also makes an election

for the next plan year, then the actuary is

not required to certify the plan’s AFTAP

for the plan year that begins in 2019.

If the plan’s actuary has certified an

AFTAP for a plan year, then the Schedule

SB of Form 5500 for that plan year should

reflect the certified AFTAP. Without regard to whether the plan’s actuary has certified an AFTAP for a plan year, if the plan

sponsor made an election under § 3608(b)

of the CARES Act, then the plan’s actuary

should attach to the Schedule SB a statement relating to the line 15 entry stating

that the plan sponsor made that election,

the date of that election, and the AFTAP

that applied for the plan year pursuant to

the election.

Q-16: If a plan’s actuary certified the

plan’s AFTAP for a plan year for which

the plan sponsor later makes the election

under § 3608(b) of the CARES Act, what

is the effect of that certification?

A-16: If a plan’s actuary certified the

plan’s AFTAP for a plan year before the

plan sponsor makes the election under §

3608(b) of the CARES Act, then the plan

sponsor’s election is treated as a subsequent determination of the AFTAP for that

plan year. However, pursuant to § 1.4361(h)(4)(iii)(C)(9) and this notice, the plan

sponsor’s election is eligible for deemed

immaterial treatment (and for purposes of

§ 1.436-1(h)(4)(iii)(C), the plan sponsor’s

election is treated as the recertification on

the part of the actuary that is otherwise

required for deemed immaterial treatment pursuant to § 1.436-1(h)(4)(v)(D)).

Thus, the AFTAP that applies pursuant to

the plan sponsor’s election is applied on a

prospective basis beginning with the date

of the election.

If a plan’s actuary certifies the plan’s

AFTAP for a plan year after the plan sponsor makes the election under § 3608(b) of

the CARES Act for that plan year, then

that certified AFTAP does not apply for

that plan year unless the plan sponsor revokes the election. Any revocation must

be made using the same procedures as

the election, and, in that case, the certified

Bulletin No. 2020–35

AFTAP is treated as a subsequent determination of the AFTAP that is not eligible

for deemed immaterial treatment under

§ 1.436-1(h)(4)(iii)(C).

Q-17: How does the restriction on

plan amendments and unpredictable contingent event benefits apply if the AFTAP

that applies is pursuant to a plan sponsor’s election under § 3608(b) of the

CARES Act?

A-17: If the AFTAP that applies is

pursuant to a plan sponsor’s election under § 3608(b) of the CARES Act, then

the restriction on plan amendments and

unpredictable contingent event benefits

is applied using the rules of § 1.436-1(g)

(2) through (4) (which apply for the period in a plan year during which a § 436(h)

presumption applies), except that the

AFTAP that applies pursuant to the plan

sponsor’s election is substituted for the

presumed AFTAP. Thus, for example, the

AFTAP that applies pursuant to the plan

sponsor’s election will be used to calculate a presumed adjusted funding target

pursuant to § 1.436-1(g)(2)(ii) and an inclusive presumed AFTAP as described in

§ 1.436-1(g)(2)(iii). The following example illustrates the application of the rules

described in this A-17:

(a) The facts are the same as in the example in A-14 of this notice. Additionally,

as of January 1, 2020, Plan B has assets

of $8,600,000, and a prefunding balance

of $400,000. During the period January 1,

2020, through June 30, 2020, the plan’s

actuary did not certify the plan’s AFTAP

for 2020, no contributions were made for

2019, no § 436 contributions were made,

and the plan sponsor made no elections

under § 430(f). Plan B’s sponsor amends

the plan to increase benefits effective on

July 1, 2020. The amendment would increase Plan B’s funding target as of January 1, 2020, by $500,000.

(b) The determination of whether the

amendment is permitted to take effect is

made by applying the rules of § 1.4361(g)(2) through (4) but substituting the

elected AFTAP of 82% for the presumed

AFTAP. Thus, this determination is made

based on a comparison of the presumed

adjusted funding target (calculated using

an AFTAP of 82%) with the updated interim value of adjusted plan assets.

(c) Plan B’s interim value of adjusted plan assets as of the valuation date is

Bulletin No. 2020–35

$8,200,000 (that is, $8,600,000 minus

the prefunding balance of $400,000). Because there were no events that must be

reflected in an update to the interim value of adjusted plan assets under the rules

of § 1.436-1(g)(2)(iii)(A), the updated

interim value of adjusted plan assets remains $8,200,000. Prior to reflecting the

amendment, Plan B’s presumed adjusted funding target as of January 1, 2020,

is $10,000,000 ($8,200,000, divided by

the AFTAP of 82%). Increasing Plan

B’s presumed adjusted funding target by

$500,000 to reflect the amendment results

in an inclusive presumed adjusted funding

target of $10,500,00 and would result in

an AFTAP of 78% (that is, the updated interim value of adjusted plan assets as of

January 1, 2020, of $8,200,000 divided by

the inclusive presumed adjusted funding

target of $10,500,000).

(d) Because Plan B’s AFTAP was over

80% prior to taking the amendment into

account but would be less than 80% if

the amendment were taken into account,

§ 436(c) prohibits the plan amendment

from taking effect unless the updated interim value of adjusted plan assets is increased so that the AFTAP would equal

80%. This would require an increase of

$200,000 (that is, 80% of the presumed

adjusted funding target of $10,500,000

less the interim value of adjusted plan assets of $8,200,000). Therefore, the plan

sponsor may either elect to reduce Plan

B’s prefunding balance as of January 1,

2020, by $200,000, or make a $200,000 §

436 contribution (with interest to the date

of payment) in order to increase the AFTAP to 80% (that is, an updated interim

value of adjusted plan assets as of January

1, 2020, of $8,400,000 divided by the inclusive presumed adjusted funding target

of $10,500,000).

Q-18: Does the AFTAP that applies

pursuant to a plan sponsor’s election for

a plan year apply for purposes of the presumptions under § 436(h) used in a subsequent plan year?

A-18: The AFTAP that applies pursuant to a plan sponsor’s election for a plan

year generally will not apply for purposes

of the presumptions under § 436(h) used

in a subsequent plan year. Instead, the

actual AFTAP for the plan year that was

certified by the plan’s actuary generally

is used for purposes of applying the pre-

475

sumption rules under § 436(h) for the subsequent plan year.

If, taking into account an election made

under § 3608(b) of the CARES Act for a

plan year, no benefit limitation applied to

a plan on the last day of the plan year, then

there is no presumption of continued underfunding under § 1.436-1(h)(1) as of the beginning of the subsequent plan year and the

rules of § 1.436-1(g)(3) apply. Under those

rules, no benefit limitation would apply under § 436(d) and (e) during the first three

months of the subsequent plan year. However, under § 1.436-1(g)(3)(ii), the limitations on unpredictable contingent event

benefits and plan amendments that increase

benefit liabilities must be applied during

that period, based on the inclusive presumed adjusted funding target determined

using the prior plan year’s certified AFTAP

(as opposed to the AFTAP that applied for

that prior plan year pursuant to an election

under § 3608(b) of the CARES Act).

If a benefit limitation applied to a plan

on the last day of the plan year for which

an election under § 3608(b) of the CARES

Act is made, then the rules providing a presumption of continued underfunding under § 1.436-1(h)(1) apply. Thus, as of the

beginning of the subsequent plan year, the

benefit limitations are applied based on a

presumed AFTAP that is equal to the certified AFTAP for the plan year for which the

election was made (rather than the AFTAP

that applied for that plan year pursuant to

an election under § 3608(b) of the CARES

Act). This presumed AFTAP is used until

the earliest of the four events specified in

§ 1.436‑1(h)(1)(iv)(A) through (D). See

A-14 of this notice for the rule that treats

the plan sponsor’s election under § 3608(b)

of the CARES Act as a certification described in § 1.436‑1(h)(1)(iv)(D).

Without regard to whether a benefit limitation applied to a plan on the last day of

the plan year for which an election under

§ 3608(b) of the CARES Act is made, if a

plan’s actuary has not certified an AFTAP

for the subsequent plan year before the first

day of the fourth month of that year (and

the plan sponsor has not made an election

under § 3608(b) of the CARES Act for that

plan year by that date), then the rules under § 1.436-1(h)(2) are applied based on

the certified AFTAP for the plan year for

which the election was made (rather than

the AFTAP that applied for the plan year

August 24, 2020

pursuant to an election under § 3608(b)

of the CARES Act). For example, if for a

calendar year plan year, the plan sponsor

made an election under § 3608(b) of the

CARES Act to use the 2019 AFTAP of

82% for 2020, but the plan actuary certified

the AFTAP for 2020 at 81%, then under

§ 1.436-1(h)(2)(i), the plan will be subject

to limitations of § 1.436-1(d)(3) beginning

April 1, 2021, based on a presumed AFTAP

of 71% for 2020 (the certified AFTAP for

2020 reduced by 10 percentage points), unless the actuary has certified an AFTAP for

2021 by that date.

In order to properly reflect § 436(h)

(3) in light of the CARES Act, the plan

year following a plan year for which an

election under § 3608(b) of the CARES

Act is made must be treated as the first effective plan year, so that the special rule

of § 1.436-1(h)(2)(ii) applies. Thus, if in

the example in the preceding paragraph of

this A-18, the plan’s actuary certified an

AFTAP for 2020 of 78%, then beginning

April 1, 2021, the plan will be subject to

the limitations of § 1.436-1(d)(3) based on

a presumed AFTAP of 68% (the certified

AFTAP for 2020 reduced by 10 percentage points), unless the plan’s actuary has

certified an AFTAP for 2021 by that date.

Paperwork Reduction Act

The collections of information contained in this notice have been reviewed

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

Paperwork Reduction Act (44 U.S.C. §

3507) under control number 1545-2095.

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 collections of information in this

notice are in A-13 of this notice. The collections of information are required to implement the application of § 3608 of the

CARES Act. The collections of information are mandatory for those plan sponsors

making an election under § 3608 of the

CARES Act.

The likely respondents are sponsors of

single-employer defined benefit plans.

Any potential changes on burden will

be reported through the renewal of the

current OMB approval numbers.

August 24, 2020

Estimates of the annualized cost to respondents are not available at this time.

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 § 6103.

required minimum distributions to age 72

for employees born after June 30, 1949.

To assist with the implementation of

the modified safe harbor explanations,

this notice includes an appendix with two

model safe harbor explanations: one for

distributions that are not from a designated Roth account, and the other for distributions from a designated Roth account.

Drafting information

II. BACKGROUND

The principal author of this notice is

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

Exempt Organizations, and Employment

Taxes). However, other personnel from

the IRS participated in the development

of this guidance. For further information

regarding this notice, contact Mr. Morgan

or Linda Marshall at 202-317-6700 (not a

toll-free number).

A. Section 402(f)

Safe Harbor Explanations

– Eligible Rollover

Distributions

Notice 2020-62

I. PURPOSE

This notice modifies the two safe

harbor explanations in Notice 2018-74,

2018-40 I.R.B. 529, that may be used to

satisfy the requirement under § 402(f) of

the Internal Revenue Code (Code) that

certain information be provided to recipients of eligible rollover distributions. The

safe harbor explanations as modified by

this notice take into consideration certain

legislative changes, including changes

related to the Setting Every Community

Up for Retirement Enhancement Act of

2019 (SECURE Act), which was enacted

as part of the Further Consolidated Appropriations Act, 2020, Pub. L. 116-94,

133 Stat. 2534 (2019). The SECURE Act

adds § 72(t)(2)(H) of the Code as a new

exception to the 10% additional tax under

§ 72(t)(1) for qualified birth or adoption

distributions. The SECURE Act also includes an amendment to § 401(a)(9)(C)(i)

(I) of the Code that increases the age for

476

Section 402(f) requires the plan administrator of a plan qualified under § 401(a)

to provide the written explanation described in § 402(f)(1) to any recipient of

an eligible rollover distribution, as defined

in § 402(c)(4). In addition, §§ 403(a)(4)

(B) and 457(e)(16)(B) require the plan

administrator of a § 403(a) plan, or an eligible § 457(b) plan maintained by a governmental employer described in § 457(e)

(1)(A), to provide the written explanation

to any recipient of an eligible rollover distribution. Further, § 403(b)(8)(B) requires

a payor under a § 403(b) plan to provide

the written explanation to any recipient of

an eligible rollover distribution.

Section 1.402(f)-1, Q&A-1(a), provides that the plan administrator of a qualified plan is required, within a reasonable

period of time before making an eligible

rollover distribution, to provide the distributee with the written explanation described in § 402(f) (§ 402(f) notice).

Notice 2018-74 sets forth two safe harbor

explanations that reflect relevant law as of

September 19, 2018: one safe harbor explanation is for payments not from a designated

Roth account and the other safe harbor explanation is for payments from a designated

Roth account. Notice 2018-74 provides that

the safe harbor explanations may be used

by plan administrators and payors to satisfy

§ 402(f) to the extent that the explanations

accurately reflect current law.

B. Recent Statutory Changes Related

to Distributions

1. Qualified Birth or Adoption

Distributions

Section 72(t)(1) generally provides

for a 10% additional tax on a distribution

Bulletin No. 2020–35

from a qualified retirement plan, unless

the distribution qualifies for one of the exceptions in § 72(t)(2). Section 113 of the

SECURE Act amended § 72(t)(2) of the

Code to add § 72(t)(2)(H), which permits

an individual to receive up to $5,000 for

a qualified birth or adoption distribution

from an applicable eligible retirement

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

an eligible retirement plan as defined in

§ 402(c)(8)(B) other than a defined benefit plan). The distribution is not subject

to the 10% additional tax under § 72(t)(1)

to the extent it meets the requirements of

a qualified birth or adoption distribution.

A qualified birth or adoption distribution

is defined in § 72(t)(2)(H)(iii)(I) as any

distribution from an applicable eligible

retirement plan to an individual if made

during the 1-year period beginning on the

date on which the child of the individual

is born or on which the legal adoption by

the individual of an eligible adoptee is finalized.

Section 72(t)(2)(H)(v)(I) provides

that the individual may recontribute a

qualified birth or adoption distribution

(not to exceed the amount of the distribution) to an applicable eligible retirement plan in which the taxpayer is a

beneficiary and to which a rollover can

be made. However, § 72(t)(2)(H)(vi)(II)

provides that a qualified birth or adoption distribution is not treated as an eligible rollover distribution for purposes of

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

the notice requirement under § 402(f), or

the mandatory withholding rules under

§ 3405. Thus, although a qualified birth

or adoption distribution generally may

be recontributed to an applicable eligible

retirement plan, a plan administrator is

not required to provide a § 402(f) notice

to a recipient of a qualified birth or adoption distribution.

2. Required Minimum Distributions

Section 114 of the SECURE Act amended § 401(a)(9) of the Code to change the

required beginning date applicable to §

401(a) plans and other eligible retirement

plans described in § 402(c)(8), including a

§ 401(a) qualified plan, a § 403(a) annuity plan, a § 403(b) annuity contract, a §

457(b) plan maintained by a governmental employer, and an individual retirement

Bulletin No. 2020–35

account or annuity (IRA) described in §

408(a) or (b). The new required beginning

date for an employee or an IRA owner

is April 1 of the calendar year following

the calendar year in which the individual

attains age 72, rather than April 1 of the

calendar year following the calendar year

in which the individual attains age 70½.

This amendment to § 401(a)(9) is effective for distributions required to be made

after December 31, 2019, with respect to

individuals who will attain age 70½ after

that date. As a result of this change, employees and IRA owners who will attain

age 70½ in 2020 will not have a required

beginning date of April 1, 2021.

3. Coronavirus-related Distributions

Section 2202(a) of the Coronavirus Aid,

Relief, and Economic Security Act, Pub.

L. 116-136, 134 Stat. 281 (2020) (CARES

Act) permits an individual to receive a

coronavirus-related distribution from an

eligible retirement plan (as defined in §

402(c)(8)(B)). Section 2202(a)(4)(A) of

the CARES Act defines a coronavirus-related distribution as any distribution from

an eligible retirement plan made on or after January 1, 2020, and before December

31, 2020, to a qualified individual. Section 2202(a)(2) of the CARES Act limits

the amount of the aggregate distributions

from all eligible retirement plans that can

be treated as coronavirus-related distributions to no more than $100,000. A coronavirus-related distribution under section

2202(a) of the CARES Act is not subject

to the 10% additional tax under § 72(t)(1).

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.

Section 2202(a)(3) of the CARES Act

provides that a qualified individual may

recontribute a coronavirus-related distribution (not to exceed the amount of the

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

beneficiary and to which a rollover can

be made. However, a coronavirus-related distribution is not an eligible rollover

distribution for purposes of the direct

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

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

Thus, although a coronavirus-related dis-

477

tribution generally may be recontributed

to an applicable eligible retirement plan,

a plan administrator is not required to provide a § 402(f) notice to a recipient of a

coronavirus-related distribution. For more

information relating to section 2202 of the

CARES Act, see Notice 2020-50, 2020-28

I.R.B. 35.

III. MODIFICATIONS TO THE SAFE

HARBOR EXPLANATIONS

Two updated safe harbor explanations

are appended to this notice (see the Appendix). The safe harbor explanations

modify the safe harbor explanations in

Notice 2018-74 to reflect certain legislative changes made after October 1, 2018,

including: (1) the exception to the 10%

additional tax under § 72(t)(1) for qualified birth or adoption distributions, and

(2) the increase to age 72 for minimum

required distributions for employees born

after June 30, 1949. The safe harbor explanations also include other minor modifications to improve their clarity, including

adding that payments of certain premiums

for health and accident insurance are not

eligible rollover distributions, rearranging

bullets for readability, and spelling out acronyms when first used.

The updated safe harbor explanations

provided in this notice may be used by

plan administrators and payors to satisfy

§ 402(f). However, the updated safe harbor explanations will not satisfy § 402(f)

to the extent the explanations are no longer accurate because of a change in the

relevant law occurring after August 6,

2020.

The first safe harbor explanation reflects the rules relating to distributions not

from a designated Roth account. Thus,

the first safe harbor explanation should

be used only for a distribution that is not

from a designated Roth account. The second safe harbor explanation reflects the

rules relating to distributions from a designated Roth account. Thus, the second

safe harbor explanation should be used

only for a distribution from a designated

Roth account. Both explanations should

be provided to a participant if the participant is eligible to receive eligible rollover

distributions from both a designated Roth

account and an account other than a designated Roth account.

August 24, 2020

The safe harbor explanation in this notice for distributions not from a designated Roth account meets the requirements

of § 402(f) for an eligible rollover distribution that is not from a designated Roth

account if provided to the recipient of the

eligible rollover distribution within a reasonable period of time before the distribution is made. Similarly, the safe harbor

explanation in this notice for distributions

from a designated Roth account meets the

requirements of § 402(f) for an eligible

rollover distribution from a designated

Roth account if provided to the recipient

of the eligible rollover distribution within

a reasonable period of time before the distribution is made.

Section 1.402(f)-1, Q&A-2, provides,

in general, that a reasonable period of time

for providing an explanation is no less than

30 days (subject to waiver) and no more

than 90 days before the date on which the

distribution is made. However, proposed

§ 1.402(f)-1, Q&A-2(a), pursuant to section 1102(a)(1)(B) of the Pension Protection Act of 2006, Pub. L. 109-280, 120 Stat.

780 (2006), provides that a notice required

to be provided under § 402(f) may be provided to a participant as much as 180 days

before the date on which the distribution is

August 24, 2020

made (or the annuity starting date). These

proposed regulations further provide that,

with respect to the extended period for

notices, plans may rely on the proposed

regulations for notices provided during the

period beginning on the first day of the first

plan year beginning on or after January 1,

2007, and ending on the effective date of

final regulations. Thus, the § 402(f) notice

may be provided as many as 180 days before the date on which the distribution is

made (or the annuity starting date).

A plan administrator or payor may customize a safe harbor explanation by omitting any information that does not apply to

the plan. For example, if the plan does not

hold after-tax employee contributions, it

would be appropriate to eliminate the section “If your payment includes after-tax

contributions” in the explanation for

payments not from a designated Roth account. Similarly, if the plan does not provide for distributions of employer stock or

other employer securities, it would be appropriate to eliminate the section “If your

payment includes employer stock that you

do not roll over.” Other information that

may not be relevant to a particular plan includes, for example, the sections “If your

payment is from a governmental section

478

457(b) plan” and “If you are an eligible

retired public safety officer and your payment is used to pay for health coverage

or qualified long-term care insurance.” In

addition, the plan administrator or payor

may provide additional information with a

safe harbor explanation if the information

is not inconsistent with § 402(f).

Alternatively, a plan administrator or

payor may satisfy § 402(f) by providing

an explanation that is different from a

safe harbor explanation. Any explanation

must include the information required by

§ 402(f) and must be written in a manner

designed to be easily understood.

IV. EFFECT ON OTHER

DOCUMENTS

Notice 2018-74 is modified.

DRAFTING INFORMATION

The principal author of this notice is

Vernon Carter of the Office of Associate

Chief Counsel (Employee Benefits, Exempt Organizations, and Employment

Taxation). For further information regarding this notice, contact Mr. Carter at (202)

317-6799 (not a toll-free number).

Bulletin No. 2020–35

Appendix





For Payments Not From a

Designated Roth Account

YOUR ROLLOVER OPTIONS

You are receiving this notice because all or a portion of a payment you are receiving from the [INSERT NAME OF PLAN] (the

“Plan”) is eligible to be rolled over to an IRA or an employer plan. This notice is intended to help you decide whether to do such a

rollover.

This notice describes the rollover rules that apply to payments from the Plan that are not from a designated Roth account (a type of

account in some employer plans that is subject to special tax rules). If you also receive a payment from a designated Roth account

in the Plan, you will be provided a different notice for that payment, and the Plan administrator or the payor will tell you the amount

that is being paid from each account.

Rules that apply to most payments from a plan are described in the “General Information About Rollovers” section. Special rules that

only apply in certain circumstances are described in the “Special Rules and Options” section.

GENERAL INFORMATION ABOUT ROLLOVERS

How can a rollover affect my taxes?

You will be taxed on a payment from the Plan if you do not roll it over. If you are under age 59½ and do not do a rollover, you will also

have to pay a 10% additional income tax on early distributions (generally, distributions made before age 59½), unless an exception

applies. However, if you do a rollover, you will not have to pay tax until you receive payments later and the 10% additional income

tax will not apply if those payments are made after you are age 59½ (or if an exception to the 10% additional income tax applies).

What types of retirement accounts and plans may accept my rollover?

You may roll over the payment to either an IRA (an individual retirement account or individual retirement annuity) or an employer

plan (a tax-qualified plan, section 403(b) plan, or governmental section 457(b) plan) that will accept the rollover. The rules of the IRA

or employer plan that holds the rollover will determine your investment options, fees, and rights to payment from the IRA or employer

plan (for example, IRAs are not subject to spousal consent rules, and IRAs may not provide loans). Further, the amount rolled over

will become subject to the tax rules that apply to the IRA or employer plan.

How do I do a rollover?

There are two ways to do a rollover. You can do either a direct rollover or a 60-day rollover.

If you do a direct rollover, the Plan will make the payment directly to your IRA or an employer plan. You should contact the IRA

sponsor or the administrator of the employer plan for information on how to do a direct rollover.

If you do not do a direct rollover, you may still do a rollover by making a deposit into an IRA or eligible employer plan that will

accept it. Generally, you will have 60 days after you receive the payment to make the deposit. If you do not do a direct rollover, the

Plan is required to withhold 20% of the payment for federal income taxes (up to the amount of cash and property received other than

employer stock). This means that, in order to roll over the entire payment in a 60-day rollover, you must use other funds to make up

for the 20% withheld. If you do not roll over the entire amount of the payment, the portion not rolled over will be taxed and will be

subject to the 10% additional income tax on early distributions if you are under age 59½ (unless an exception applies).

How much may I roll over?

If you wish to do a rollover, you may roll over all or part of the amount eligible for rollover. Any payment from the Plan is eligible

for rollover, except:

•

Certain payments spread over a period of at least 10 years or over your life or life expectancy (or the joint lives or joint life expectancies of you and your beneficiary);

Bulletin No. 2020–35

479

August 24, 2020

•

•

•

•

•

•

•

•

•

Required minimum distributions after age 70½ (if you were born before July 1, 1949), after age 72 (if you were born after June

30, 1949), or after death;

Hardship distributions;

Payments of employee stock ownership plan (ESOP) dividends;

Corrective distributions of contributions that exceed tax law limitations;

Loans treated as deemed distributions (for example, loans in default due to missed payments before your employment ends);

Cost of life insurance paid by the Plan;

Payments of certain automatic enrollment contributions that you request to withdraw within 90 days of your first contribution;

Amounts treated as distributed because of a prohibited allocation of S corporation stock under an ESOP (also, there generally

will be adverse tax consequences if you roll over a distribution of S corporation stock to an IRA); and

Distributions of certain premiums for health and accident insurance.

The Plan administrator or the payor can tell you what portion of a payment is eligible for rollover.

If I don’t do a rollover, will I have to pay the 10% additional income tax on early distributions?

If you are under age 59½, you will have to pay the 10% additional income tax on early distributions for any payment from the Plan

(including amounts withheld for income tax) that you do not roll over, unless one of the exceptions listed below applies. This tax

applies to the part of the distribution that you must include in income and is in addition to the regular income tax on the payment not

rolled over.

The 10% additional income tax does not apply to the following payments from the Plan:

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

Payments made after you separate from service if you will be at least age 55 in the year of the separation;

Payments that start after you separate from service if paid at least annually in equal or close to equal amounts over your life or

life expectancy (or the joint lives or joint life expectancies of you and your beneficiary);

Payments from a governmental plan made after you separate from service if you are a qualified public safety employee and you

will be at least age 50 in the year of the separation;

Payments made due to disability;

Payments after your death;

Payments of ESOP dividends;

Corrective distributions of contributions that exceed tax law limitations;

Cost of life insurance paid by the Plan;

Payments made directly to the government to satisfy a federal tax levy;

Payments made under a qualified domestic relations order (QDRO);

Payments of up to $5,000 made to you from a defined contribution plan if the payment is a qualified birth or adoption distribution;

Payments up to the amount of your deductible medical expenses (without regard to whether you itemize deductions for the taxable year);

Certain payments made while you are on active duty if you were a member of a reserve component called to duty after September

11, 2001 for more than 179 days;

Payments of certain automatic enrollment contributions that you request to withdraw within 90 days of your first contribution;

Payments excepted from the additional income tax by federal legislation relating to certain emergencies and disasters; and

Phased retirement payments made to federal employees.

If I do a rollover to an IRA, will the 10% additional income tax apply to early distributions from the IRA?

If you receive a payment from an IRA when you are under age 59½, you will have to pay the 10% additional income tax on early

distributions on the part of the distribution that you must include in income, unless an exception applies. In general, the exceptions to

the 10% additional income tax for early distributions from an IRA are the same as the exceptions listed above for early distributions

from a plan. However, there are a few differences for payments from an IRA, including:

•

•

The exception for payments made after you separate from service if you will be at least age 55 in the year of the separation (or

age 50 for qualified public safety employees) does not apply;

The exception for qualified domestic relations orders (QDROs) does not apply (although a special rule applies under which, as

part of a divorce or separation agreement, a tax-free transfer may be made directly to an IRA of a spouse or former spouse); and

August 24, 2020

480

Bulletin No. 2020–35

•

The exception for payments made at least annually in equal or close to equal amounts over a specified period applies without

regard to whether you have had a separation from service.

Additional exceptions apply for payments from an IRA, including:

•

•

•

Payments for qualified higher education expenses;

Payments up to $10,000 used in a qualified first-time home purchase; and

Payments for health insurance premiums after you have received unemployment compensation for 12 consecutive weeks (or

would have been eligible to receive unemployment compensation but for self-employed status).

Will I owe State income taxes?

This notice does not address any State or local income tax rules (including withholding rules).

SPECIAL RULES AND OPTIONS

If your payment includes after-tax contributions

After-tax contributions included in a payment are not taxed. If you receive a partial payment of your total benefit, an allocable portion

of your after-tax contributions is included in the payment, so you cannot take a payment of only after-tax contributions. However,

if you have pre-1987 after-tax contributions maintained in a separate account, a special rule may apply to determine whether the after-tax contributions are included in the payment. In addition, special rules apply when you do a rollover, as described below.

You may roll over to an IRA a payment that includes after-tax contributions through either a direct rollover or a 60-day rollover. You

must keep track of the aggregate amount of the after-tax contributions in all of your IRAs (in order to determine your taxable income

for later payments from the IRAs). If you do a direct rollover of only a portion of the amount paid from the Plan and at the same

time the rest is paid to you, the portion rolled over consists first of the amount that would be taxable if not rolled over. For example,

assume you are receiving a distribution of $12,000, of which $2,000 is after-tax contributions. In this case, if you directly roll over

$10,000 to an IRA that is not a Roth IRA, no amount is taxable because the $2,000 amount not rolled over is treated as being after-tax

contributions. If you do a direct rollover of the entire amount paid from the Plan to two or more destinations at the same time, you

can choose which destination receives the after-tax contributions.

Similarly, if you do a 60-day rollover to an IRA of only a portion of a payment made to you, the portion rolled over consists first of

the amount that would be taxable if not rolled over. For example, assume you are receiving a distribution of $12,000, of which $2,000

is after-tax contributions, and no part of the distribution is directly rolled over. In this case, if you roll over $10,000 to an IRA that

is not a Roth IRA in a 60-day rollover, no amount is taxable because the $2,000 amount not rolled over is treated as being after-tax

contributions.

You may roll over to an employer plan all of a payment that includes after-tax contributions, but only through a direct rollover (and

only if the receiving plan separately accounts for after-tax contributions and is not a governmental section 457(b) plan). You can do

a 60-day rollover to an employer plan of part of a payment that includes after-tax contributions, but only up to the amount of the

payment that would be taxable if not rolled over.

If you miss the 60-day rollover deadline

Generally, the 60-day rollover deadline cannot be extended. However, the IRS has the limited authority to waive the deadline under

certain extraordinary circumstances, such as when external events prevented you from completing the rollover by the 60-day rollover

deadline. Under certain circumstances, you may claim eligibility for a waiver of the 60-day rollover deadline by making a written

self-certification. Otherwise, to apply for a waiver from the IRS, you must file a private letter ruling request with the IRS. Private letter ruling requests require the payment of a nonrefundable user fee. For more information, see IRS Publication 590-A, Contributions

to Individual Retirement Arrangements (IRAs).

If your payment includes employer stock that you do not roll over

If you do not do a rollover, you can apply a special rule to payments of employer stock (or other employer securities) that are either

attributable to after-tax contributions or paid in a lump sum after separation from service (or after age 59½, disability, or the participant’s death). Under the special rule, the net unrealized appreciation on the stock will not be taxed when distributed from the Plan

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and will be taxed at capital gain rates when you sell the stock. Net unrealized appreciation is generally the increase in the value of

employer stock after it was acquired by the Plan. If you do a rollover for a payment that includes employer stock (for example, by

selling the stock and rolling over the proceeds within 60 days of the payment), the special rule relating to the distributed employer

stock will not apply to any subsequent payments from the IRA or, generally, the Plan. The Plan administrator can tell you the amount

of any net unrealized appreciation.

If you have an outstanding loan that is being offset

If you have an outstanding loan from the Plan, your Plan benefit may be offset by the outstanding amount of the loan, typically when

your employment ends. The offset amount is treated as a distribution to you at the time of the offset. Generally, you may roll over all

or any portion of the offset amount. Any offset amount that is not rolled over will be taxed (including the 10% additional income tax

on early distributions, unless an exception applies). You may roll over offset amounts to an IRA or an employer plan (if the terms of

the employer plan permit the plan to receive plan loan offset rollovers).

How long you have to complete the rollover depends on what kind of plan loan offset you have. If you have a qualified plan loan

offset, you will have until your tax return due date (including extensions) for the tax year during which the offset occurs to complete

your rollover. A qualified plan loan offset occurs when a plan loan in good standing is offset because your employer plan terminates,

or because you sever from employment. If your plan loan offset occurs for any other reason (such as a failure to make level loan

repayments that results in a deemed distribution), then you have 60 days from the date the offset occurs to complete your rollover.

If you were born on or before January 1, 1936

If you were born on or before January 1, 1936 and receive a lump sum distribution that you do not roll over, special rules for calculating the amount of the tax on the payment might apply to you. For more information, see IRS Publication 575, Pension and Annuity

Income.

If your payment is from a governmental section 457(b) plan

If the Plan is a governmental section 457(b) plan, the same rules described elsewhere in this notice generally apply, allowing you to

roll over the payment to an IRA or an employer plan that accepts rollovers. One difference is that, if you do not do a rollover, you will

not have to pay the 10% additional income tax on early distributions from the Plan even if you are under age 59½ (unless the payment

is from a separate account holding rollover contributions that were made to the Plan from a tax-qualified plan, a section 403(b) plan,

or an IRA). However, if you do a rollover to an IRA or to an employer plan that is not a governmental section 457(b) plan, a later distribution made before age 59½ will be subject to the 10% additional income tax on early distributions (unless an exception applies).

Other differences include that you cannot do a rollover if the payment is due to an “unforeseeable emergency” and the special rules

under “If your payment includes employer stock that you do not roll over” and “If you were born on or before January 1, 1936” do

not apply.

If you are an eligible retired public safety officer and your payment is used to pay for health coverage or qualified long-term

care insurance

If the Plan is a governmental plan, you retired as a public safety officer, and your retirement was by reason of disability or was after

normal retirement age, you can exclude from your taxable income Plan payments paid directly as premiums to an accident or health

plan (or a qualified long-term care insurance contract) that your employer maintains for you, your spouse, or your dependents, up to

a maximum of $3,000 annually. For this purpose, a public safety officer is a law enforcement officer, firefighter, chaplain, or member

of a rescue squad or ambulance crew.

If you roll over your payment to a Roth IRA

If you roll over a payment from the Plan to a Roth IRA, a special rule applies under which the amount of the payment rolled over

(reduced by any after-tax amounts) will be taxed. In general, the 10% additional income tax on early distributions will not apply.

However, if you take the amount rolled over out of the Roth IRA within the 5-year period that begins on January 1 of the year of the

rollover, the 10% additional income tax will apply (unless an exception applies).

If you roll over the payment to a Roth IRA, later payments from the Roth IRA that are qualified distributions will not be taxed (including earnings after the rollover). A qualified distribution from a Roth IRA is a payment made after you are age 59½ (or after your

death or disability, or as a qualified first-time homebuyer distribution of up to $10,000) and after you have had a Roth IRA for at least

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5 years. In applying this 5-year rule, you count from January 1 of the year for which your first contribution was made to a Roth IRA.

Payments from the Roth IRA that are not qualified distributions will be taxed to the extent of earnings after the rollover, including the

10% additional income tax on early distributions (unless an exception applies). You do not have to take required minimum distributions from a Roth IRA during your lifetime. For more information, see IRS Publication 590-A, Contributions to Individual Retirement

Arrangements (IRAs), and IRS Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs).

If you do a rollover to a designated Roth account in the Plan

You cannot roll over a distribution to a designated Roth account in another employer’s plan. However, you can roll the distribution over

into a designated Roth account in the distributing Plan. If you roll over a payment from the Plan to a designated Roth account in the

Plan, the amount of the payment rolled over (reduced by any after-tax amounts directly rolled over) will be taxed. In general, the 10%

additional income tax on early distributions will not apply. However, if you take the amount rolled over out of the Roth IRA within the

5-year period that begins on January 1 of the year of the rollover, the 10% additional income tax will apply (unless an exception applies).

If you roll over the payment to a designated Roth account in the Plan, later payments from the designated Roth account that are qualified distributions will not be taxed (including earnings after the rollover). A qualified distribution from a designated Roth account

is a payment made both after you are age 59½ (or after your death or disability) and after you have had a designated Roth account

in the Plan for at least 5 years. In applying this 5-year rule, you count from January 1 of the year your first contribution was made

to the designated Roth account. However, if you made a direct rollover to a designated Roth account in the Plan from a designated

Roth account in a plan of another employer, the 5-year period begins on January 1 of the year you made the first contribution to the

designated Roth account in the Plan or, if earlier, to the designated Roth account in the plan of the other employer. Payments from

the designated Roth account that are not qualified distributions will be taxed to the extent of earnings after the rollover, including the

10% additional income tax on early distributions (unless an exception applies).

If you are not a Plan participant

Payments after death of the participant. If you receive a distribution after the participant’s death that you do not roll over, the distribution generally will be taxed in the same manner described elsewhere in this notice. However, the 10% additional income tax on early

distributions and the special rules for public safety officers do not apply, and the special rule described under the section “If you were

born on or before January 1, 1936” applies only if the deceased participant was born on or before January 1, 1936.

I f you are a surviving spouse. If you receive a payment from the Plan as the surviving spouse of a deceased participant, you have

the same rollover options that the participant would have had, as described elsewhere in this notice. In addition, if you choose to

do a rollover to an IRA, you may treat the IRA as your own or as an inherited IRA.

 n IRA you treat as your own is treated like any other IRA of yours, so that payments made to you before you are age 59½ will be

A

subject to the 10% additional income tax on early distributions (unless an exception applies) and required minimum distributions

from your IRA do not have to start until after you are age 70½ (if you were born before July 1, 1949) or age 72 (if you were born

after June 30, 1949).

I f you treat the IRA as an inherited IRA, payments from the IRA will not be subject to the 10% additional income tax on early

distributions. However, if the participant had started taking required minimum distributions, you will have to receive required minimum distributions from the inherited IRA. If the participant had not started taking required minimum distributions from the Plan,

you will not have to start receiving required minimum distributions from the inherited IRA until the year the participant would

have been age 70½ (if the participant was born before July 1, 1949) or age 72 (if the participant was born after June 30, 1949).

I f you are a surviving beneficiary other than a spouse. If you receive a payment from the Plan because of the participant’s death

and you are a designated beneficiary other than a surviving spouse, the only rollover option you have is to do a direct rollover to an

inherited IRA. Payments from the inherited IRA will not be subject to the 10% additional income tax on early distributions. You

will have to receive required minimum distributions from the inherited IRA.

Payments under a QDRO. If you are the spouse or former spouse of the participant who receives a payment from the Plan under a

QDRO, you generally have the same options and the same tax treatment that the participant would have (for example, you may roll

over the payment to your own IRA or an eligible employer plan that will accept it). However, payments under the QDRO will not be

subject to the 10% additional income tax on early distributions.

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If you are a nonresident alien

If you are a nonresident alien and you do not do a direct rollover to a U.S. IRA or U.S. employer plan, instead of withholding 20%,

the Plan is generally required to withhold 30% of the payment for federal income taxes. If the amount withheld exceeds the amount

of tax you owe (as may happen if you do a 60-day rollover), you may request an income tax refund by filing Form 1040NR and

attaching your Form 1042-S. See Form W-8BEN for claiming that you are entitled to a reduced rate of withholding under an income

tax treaty. For more information, see also IRS Publication 519, U.S. Tax Guide for Aliens, and IRS Publication 515, Withholding of

Tax on Nonresident Aliens and Foreign Entities.

Other special rules

If a payment is one in a series of payments for less than 10 years, your choice whether to do a direct rollover will apply to all later

payments in the series (unless you make a different choice for later payments).

If your payments for the year are less than $200 (not including payments from a designated Roth account in the Plan), the Plan is not

required to allow you to do a direct rollover and is not required to withhold federal income taxes. However, you may do a 60-day

rollover.

Unless you elect otherwise, a mandatory cashout of more than $1,000 (not including payments from a designated Roth account in the

Plan) will be directly rolled over to an IRA chosen by the Plan administrator or the payor. A mandatory cashout is a payment from a

plan to a participant made before age 62 (or normal retirement age, if later) and without consent, where the participant’s benefit does

not exceed $5,000 (not including any amounts held under the plan as a result of a prior rollover made to the plan).

You may have special rollover rights if you recently served in the U.S. Armed Forces. For more information on special rollover rights

related to the U.S. Armed Forces, see IRS Publication 3, Armed Forces’ Tax Guide. You also may have special rollover rights if you

were affected by a federally declared disaster (or similar event), or if you received a distribution on account of a disaster. For more

information on special rollover rights related to disaster relief, see the IRS website at www.irs.gov.

FOR MORE INFORMATION

You may wish to consult with the Plan administrator or payor, or a professional tax advisor, before taking a payment from the Plan.

Also, you can find more detailed information on the federal tax treatment of payments from employer plans in: IRS Publication 575,

Pension and Annuity Income; IRS Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs); IRS Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs); and IRS Publication 571, Tax-Sheltered Annuity Plans

(403(b) Plans). These publications are available from a local IRS office, on the web at www.irs.gov, or by calling 1-800-TAX-FORM.



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For Payments From a

Designated Roth Account

YOUR ROLLOVER OPTIONS

You are receiving this notice because all or a portion of a payment you are receiving from the [INSERT NAME OF PLAN] (the

“Plan”) is eligible to be rolled over to a Roth IRA or designated Roth account in an employer plan. This notice is intended to help

you decide whether to do a rollover.

This notice describes the rollover rules that apply to payments from the Plan that are from a designated Roth account. If you also

receive a payment from the Plan that is not from a designated Roth account, you will be provided a different notice for that payment,

and the Plan administrator or the payor will tell you the amount that is being paid from each account.

Rules that apply to most payments from a designated Roth account are described in the “General Information About Rollovers” section. Special rules that only apply in certain circumstances are described in the “Special Rules and Options” section.

GENERAL INFORMATION ABOUT ROLLOVERS

How can a rollover affect my taxes?

After-tax contributions included in a payment from a designated Roth account are not taxed, but earnings might be taxed. The tax

treatment of earnings included in the payment depends on whether the payment is a qualified distribution. If a payment is only part of

your designated Roth account, the payment will include an allocable portion of the earnings in your designated Roth account.

If the payment from the Plan is not a qualified distribution and you do not do a rollover to a Roth IRA or a designated Roth account

in an employer plan, you will be taxed on the portion of the payment that is earnings. If you are under age 59½, a 10% additional

income tax on early distributions (generally, distributions made before age 59½) will also apply to the earnings (unless an exception

applies). However, if you do a rollover, you will not have to pay taxes currently on the earnings and you will not have to pay taxes

later on payments that are qualified distributions.

If the payment from the Plan is a qualified distribution, you will not be taxed on any part of the payment even if you do not do a rollover. If you do a rollover, you will not be taxed on the amount you roll over and any earnings on the amount you roll over will not be

taxed if paid later in a qualified distribution.

A qualified distribution from a designated Roth account in the Plan is a payment made after you are age 59½ (or after your death or

disability) and after you have had a designated Roth account in the Plan for at least 5 years. In applying the 5-year rule, you count

from January 1 of the year your first contribution was made to the designated Roth account. However, if you did a direct rollover to

a designated Roth account in the Plan from a designated Roth account in another employer plan, your participation will count from

January 1 of the year your first contribution was made to the designated Roth account in the Plan or, if earlier, to the designated Roth

account in the other employer plan.

What types of retirement accounts and plans may accept my rollover?

You may roll over the payment to either a Roth IRA (a Roth individual retirement account or Roth individual retirement annuity) or

a designated Roth account in an employer plan (a tax-qualified plan, section 403(b) plan, or governmental section 457 plan) that will

accept the rollover. The rules of the Roth IRA or employer plan that holds the rollover will determine your investment options, fees,

and rights to payment from the Roth IRA or employer plan (for example, Roth IRAs are not subject to spousal consent rules, and

Roth IRAs may not provide loans). Further, the amount rolled over will become subject to the tax rules that apply to the Roth IRA or

the designated Roth account in the employer plan. In general, these tax rules are similar to those described elsewhere in this notice,

but differences include:

•

•

•

If you do a rollover to a Roth IRA, all of your Roth IRAs will be considered for purposes of determining whether you have satisfied the 5-year rule (counting from January 1 of the year for which your first contribution was made to any of your Roth IRAs).

If you do a rollover to a Roth IRA, you will not be required to take a distribution from the Roth IRA during your lifetime and

you must keep track of the aggregate amount of the after-tax contributions in all of your Roth IRAs (in order to determine your

taxable income for later Roth IRA payments that are not qualified distributions).

Eligible rollover distributions from a Roth IRA can only be rolled over to another Roth IRA.

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How do I do a rollover?

There are two ways to do a rollover. You can either do a direct rollover or a 60-day rollover.

If you do a direct rollover, the Plan will make the payment directly to your Roth IRA or designated Roth account in an employer plan.

You should contact the Roth IRA sponsor or the administrator of the employer plan for information on how to do a direct rollover.

If you do not do a direct rollover, you may still do a rollover by making a deposit (generally within 60 days) into a Roth IRA, whether

the payment is a qualified or nonqualified distribution. In addition, you can do a rollover by making a deposit within 60 days into a

designated Roth account in an employer plan if the payment is a nonqualified distribution and the rollover does not exceed the amount

of the earnings in the payment. You cannot do a 60-day rollover to an employer plan of any part of a qualified distribution. If you

receive a distribution that is a nonqualified distribution and you do not roll over an amount at least equal to the earnings allocable to

the distribution, you will be taxed on the amount of those earnings not rolled over, including the 10% additional income tax on early

distributions if you are under age 59½ (unless an exception applies).

If you do a direct rollover of only a portion of the amount paid from the Plan and a portion is paid to you at the same time, the portion

directly rolled over consists first of earnings.

If you do not do a direct rollover and the payment is not a qualified distribution, the Plan is required to withhold 20% of the earnings

for federal income taxes (up to the amount of cash and property received other than employer stock). This means that, in order to roll

over the entire payment in a 60-day rollover to a Roth IRA, you must use other funds to make up for the 20% withheld.

How much may I roll over?

If you wish to do a rollover, you may roll over all or part of the amount eligible for rollover. Any payment from the Plan is eligible

for rollover, except:

•

•

•

•

•

•

•

•

•

•

Certain payments spread over a period of at least 10 years or over your life or life expectancy (or the joint lives or joint life expectancies of you and your beneficiary);

Required minimum distributions after age 70½ (if you were born before July 1, 1949), after age 72 (if you were born after June

30, 1949), or after death;

Hardship distributions;

Payments of employee stock ownership plan (ESOP) dividends;

Corrective distributions of contributions that exceed tax law limitations;

Loans treated as deemed distributions (for example, loans in default due to missed payments before your employment ends);

Cost of life insurance paid by the Plan;

Payments of certain automatic enrollment contributions that you request to withdraw within 90 days of your first contribution;

and

Amounts treated as distributed because of a prohibited allocation of S corporation stock under an ESOP (also, there generally

will be adverse tax consequences if S corporation stock is held by an IRA); and

Distributions of certain premiums for health and accident insurance.

The Plan administrator or the payor can tell you what portion of a payment is eligible for rollover.

If I don’t do a rollover, will I have to pay the 10% additional income tax on early distributions?

If a payment is not a qualified distribution and you are under age 59½, you will have to pay the 10% additional income tax on early

distributions with respect to the earnings allocated to the payment that you do not roll over (including amounts withheld for income

tax), unless one of the exceptions listed below applies. This tax is in addition to the regular income tax on the earnings not rolled over.

The 10% additional income tax does not apply to the following payments from the Plan:

•

•

•

Payments made after you separate from service if you will be at least age 55 in the year of the separation;

Payments that start after you separate from service if paid at least annually in equal or close to equal amounts over your life or

life expectancy (or the joint lives or joint life expectancies of you and your beneficiary);

Payments from a governmental plan made after you separate from service if you are a qualified public safety employee and you

will be at least age 50 in the year of the separation;

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•

•

•

•

•

•

•

•

•

•

•

•

Payments made due to disability;

Payments after your death;

Payments of ESOP dividends;

Corrective distributions of contributions that exceed tax law limitations;

Cost of life insurance paid by the Plan;

Payments made directly to the government to satisfy a federal tax levy;

Payments made under a qualified domestic relations order (QDRO);

Payments of up to $5,000 made to you from a defined contribution plan if the payment is a qualified birth or adoption distribution;

Payments up to the amount of your deductible medical expenses (without regard to whether you itemize deductions for the taxable year);

Certain payments made while you are on active duty if you were a member of a reserve component called to duty after September

11, 2001 for more than 179 days;

Payments of certain automatic enrollment contributions that you request to withdraw within 90 days of your first contribution;

and

Payments excepted from the additional income tax by federal legislation relating to certain emergencies and disasters.

If I do a rollover to a Roth IRA, will the 10% additional income tax apply to early distributions from the IRA?

If you receive a payment from a Roth IRA when you are under age 59½, you will have to pay the 10% additional income tax on early

distributions on the earnings paid from the Roth IRA, unless an exception applies or the payment is a qualified distribution. In general,

the exceptions to the 10% additional income tax for early distributions from a Roth IRA listed above are the same as the exceptions

for early distributions from a plan. However, there are a few differences for payments from a Roth IRA, including:

•

•

•

The exception for payments made after you separate from service if you will be at least age 55 in the year of the separation (or

age 50 for qualified public safety employees) does not apply;

The exception for qualified domestic relations orders (QDROs) does not apply (although a special rule applies under which, as

part of a divorce or separation agreement, a tax-free transfer may be made directly to a Roth IRA of a spouse or former spouse);

and

The exception for payments made at least annually in equal or close to equal amounts over a specified period applies without

regard to whether you have had a separation from service.

Additional exceptions apply for payments from an IRA, including:

•

•

•

Payments for qualified higher education expenses;

Payments up to $10,000 used in a qualified first-time home purchase; and

Payments for health insurance premiums after you have received unemployment compensation for 12 consecutive weeks (or

would have been eligible to receive unemployment compensation but for self‑employed status).

Will I owe State income taxes?

This notice does not address any State or local income tax rules (including withholding rules).

SPECIAL RULES AND OPTIONS

If you miss the 60-day rollover deadline

Generally, the 60-day rollover deadline cannot be extended. However, the IRS has the limited authority to waive the deadline under

certain extraordinary circumstances, such as when external events prevented you from completing the rollover by the 60-day rollover

deadline. Under certain circumstances, you may claim eligibility for a waiver of the 60-day rollover deadline by making a written

self-certification. Otherwise, to apply for a waiver from the IRS, you must file a private letter ruling request with the IRS. Private letter ruling requests require the payment of a nonrefundable user fee. For more information, see IRS Publication 590-A, Contributions

to Individual Retirement Arrangements (IRAs).

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If your payment includes employer stock that you do not roll over

If you receive a payment that is not a qualified distribution and you do not roll it over, you can apply a special rule to payments of

employer stock (or other employer securities) that are paid in a lump sum after separation from service (or after age 59½, disability,

or the participant’s death). Under the special rule, the net unrealized appreciation on the stock included in the earnings in the payment

will not be taxed when distributed to you from the Plan and will be taxed at capital gain rates when you sell the stock. If you do a

rollover to a Roth IRA for a nonqualified distribution that includes employer stock (for example, by selling the stock and rolling over

the proceeds within 60 days of the distribution), you will not have any taxable income and the special rule relating to the distributed

employer stock will not apply to any subsequent payments from the Roth IRA or, generally, the Plan. Net unrealized appreciation is

generally the increase in the value of the employer stock after it was acquired by the Plan. The Plan administrator can tell you the

amount of any net unrealized appreciation.

If you receive a payment that is a qualified distribution that includes employer stock and you do not roll it over, your basis in the stock

(used to determine gain or loss when you later sell the stock) will equal the fair market value of the stock at the time of the payment

from the Plan.

If you have an outstanding loan that is being offset

If you have an outstanding loan from the Plan, your Plan benefit may be offset by the outstanding amount of the loan, typically when

your employment ends. The offset amount is treated as a distribution to you at the time of the offset. Generally, you may roll over all

or any portion of the offset amount. If the distribution attributable to the offset is not a qualified distribution and you do not roll over

the offset amount, you will be taxed on any earnings included in the distribution (including the 10% additional income tax on early

distributions, unless an exception applies). You may roll over the earnings included in the loan offset to a Roth IRA or designated

Roth account in an employer plan (if the terms of the employer plan permit the plan to receive plan loan offset rollovers). You may

also roll over the full amount of the offset to a Roth IRA.

How long you have to complete the rollover depends on what kind of plan loan offset you have. If you have a qualified plan loan offset, you will have until your tax return due date (including extensions) for the tax year during which the offset occurs to complete your

rollover. A qualified plan loan offset occurs when a plan loan in good standing is offset because your employer plan terminates, or

because you sever from employment. If your plan loan offset occurs for any other reason (such as a failure to make level repayments

that results in a deemed distribution), then you have 60 days from the date the offset occurs to complete your rollover.

If you receive a nonqualified distribution and you were born on or before January 1, 1936

If you were born on or before January 1, 1936, and receive a lump sum distribution that is not a qualified distribution and that you do

not roll over, special rules for calculating the amount of the tax on the earnings in the payment might apply to you. For more information, see IRS Publication 575, Pension and Annuity Income.

If your payment is from a governmental section 457(b) plan

If the Plan is a governmental section 457(b) plan, the same rules described elsewhere in this notice generally apply, allowing you to

roll over the payment to an IRA or an employer plan that accepts rollovers. One difference is that, if you receive a payment that is

not a qualified distribution and you do not roll it over, you will not have to pay the 10% additional income tax on early distributions

with respect to the earnings allocated to the payment that you do not roll over, even if you are under age 59½ (unless the payment is

from a separate account holding rollover contributions that were made to the Plan from a tax-qualified plan, a section 403(b) plan,

or an IRA). However, if you do a rollover to an IRA or to an employer plan that is not a governmental section 457(b) plan, a later

distribution that is not a qualified distribution made before age 59½ will be subject to the 10% additional income tax on earnings

allocated to the payment (unless an exception applies). Other differences include that you cannot do a rollover if the payment is due

to an “unforeseeable emergency” and the special rules under “If your payment includes employer stock that you do not roll over” and

“If you were born on or before January 1, 1936” do not apply.

If you receive a nonqualified distribution, are an eligible retired public safety officer, and your payment is used to pay for

health coverage or qualified long-term care insurance

If the Plan is a governmental plan, you retired as a public safety officer, and your retirement was by reason of disability or was after

normal retirement age, you can exclude from your taxable income nonqualified distributions paid directly as premiums to an accident

or health plan (or a qualified long-term care insurance contract) that your employer maintains for you, your spouse, or your depen-

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dents, up to a maximum of $3,000 annually. For this purpose, a public safety officer is a law enforcement officer, firefighter, chaplain,

or member of a rescue squad or ambulance crew.

If you are not a Plan participant

Payments after death of the participant. If you receive a distribution after the participant’s death that you do not roll over, the distribution generally will be taxed in the same manner described elsewhere in this notice. However, whether the payment is a qualified

distribution generally depends on when the participant first made a contribution to the designated Roth account in the Plan. Also,

the 10% additional income tax on early distributions and the special rules for public safety officers do not apply, and the special rule

described under the section “If you receive a nonqualified distribution and you were born on or before January 1, 1936” applies only

if the deceased participant was born on or before January 1, 1936.

I f you are a surviving spouse. If you receive a payment from the Plan as the surviving spouse of a deceased participant, you have

the same rollover options that the participant would have had, as described elsewhere in this notice. In addition, if you choose to

do a rollover to a Roth IRA, you may treat the Roth IRA as your own or as an inherited Roth IRA.

 Roth IRA you treat as your own is treated like any other Roth IRA of yours, so that you will not have to receive any required

A

minimum distributions during your lifetime and earnings paid to you in a nonqualified distribution before you are age 59½ will be

subject to the 10% additional income tax on early distributions (unless an exception applies).

I f you treat the Roth IRA as an inherited Roth IRA, payments from the Roth IRA will not be subject to the 10% additional income

tax on early distributions. An inherited Roth IRA is subject to required minimum distributions. If the participant had started taking

required minimum distributions from the Plan, you will have to receive required minimum distributions from the inherited Roth

IRA. If the participant had not started taking required minimum distributions, you will not have to start receiving required minimum distributions from the inherited Roth IRA until the year the participant would have been age 70½ (if the participant was born

before July 1, 1949) or age 72 (if the participant was born after June 30, 1949).

I f you are a surviving beneficiary other than a spouse. If you receive a payment from the Plan because of the participant’s death

and you are a designated beneficiary other than a surviving spouse, the only rollover option you have is to do a direct rollover to

an inherited Roth IRA. Payments from the inherited Roth IRA, even if made in a nonqualified distribution, will not be subject to

the 10% additional income tax on early distributions. You will have to receive required minimum distributions from the inherited

Roth IRA.

Payments under a QDRO. If you are the spouse or a former spouse of the participant who receives a payment from the Plan under a

QDRO, you generally have the same options and the same tax treatment that the participant would have (for example, you may roll

over the payment to your own Roth IRA or to a designated Roth account in an eligible employer plan that will accept it).

If you are a nonresident alien

If you are a nonresident alien, you do not do a direct rollover to a U.S. IRA or U.S. employer plan, and the payment is not a qualified

distribution, the Plan is generally required to withhold 30% (instead of withholding 20%) of the earnings for federal income taxes. If

the amount withheld exceeds the amount of tax you owe (as may happen if you do a 60-day rollover), you may request an income tax

refund by filing Form 1040NR and attaching your Form 1042-S. See Form W-8BEN for claiming that you are entitled to a reduced

rate of withholding under an income tax treaty. For more information, see also IRS Publication 519, U.S. Tax Guide for Aliens, and

IRS Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities.

Other special rules

If a payment is one in a series of payments for less than 10 years, your choice whether to do a direct rollover will apply to all later

payments in the series (unless you make a different choice for later payments).

If your payments for the year (only including payments from the designated Roth account in the Plan) are less than $200, the Plan is

not required to allow you to do a direct rollover and is not required to withhold federal income taxes. However, you can do a 60-day

rollover.

Unless you elect otherwise, a mandatory cashout from the designated Roth account in the Plan of more than $1,000 will be directly

rolled over to a Roth IRA chosen by the Plan administrator or the payor. A mandatory cashout is a payment from a plan to a participant

Bulletin No. 2020–35

489

August 24, 2020

made before age 62 (or normal retirement age, if later) and without consent, where the participant’s benefit does not exceed $5,000

(not including any amounts held under the plan as a result of a prior rollover made to the plan).

You may have special rollover rights if you recently served in the U.S. Armed Forces. For more information on special rollover rights

related to the U.S. Armed Forces, see IRS Publication 3, Armed Forces’ Tax Guide. You also may have special rollover rights if you

were affected by a federally declared disaster (or similar event), or if you received a distribution on account of a disaster. For more

information on special rollover rights related to disaster relief, see the IRS website at www.irs.gov.

FOR MORE INFORMATION

You may wish to consult with the Plan administrator or payor, or a professional tax advisor, before taking a payment from the Plan.

Also, you can find more detailed information on the federal tax treatment of payments from employer plans in: IRS Publication 575,

Pension and Annuity Income; IRS Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs); IRS Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs); and IRS Publication 571, Tax-Sheltered Annuity Plans

(403(b) Plans). These publications are available from a local IRS office, on the web at www.irs.gov, or by calling 1-800-TAX-FORM.

August 24, 2020

490

Bulletin No. 2020–35

Notice 2020-63

SECTION 1. PURPOSE

This notice modifies Notice 2006-09,

2006-6 I.R.B. 413 and Notice 2008-33,

2008-12 I.R.B. 642, 2008, by providing a

new address to which a vehicle manufacturer (or, in the case of a foreign vehicle

manufacturer, its domestic distributor)

must send vehicle certifications and quarterly reports.

SECTION 2. BACKGROUND

On February 6, 2006, the Internal Revenue Service (“Service”) published Notice

2006-9, which provides guidance regarding the credit under § 30B(a)(2) for new

advanced lean burn technology motor

vehicle credit and the new qualified hybrid motor vehicle credit under § 30B(a)

(3) and (d). Notice 2006-9 sets forth procedures for a vehicle manufacturer (or, in

the case of a foreign vehicle manufacturer,

its domestic distributor) to certify to the

Service both:

(1) That a passenger automobile or light

truck of a particular make, model,

and model year meets certain requirements that must be satisfied to claim

the new advanced lean burn technology motor vehicle credit under §

30B(a)(2) and (c) or the new qualified

hybrid motor vehicle credit under §

30B(a)(3) and (d); and

(2) The amount of the credit allowable

with respect to that vehicle.

In addition, Notice 2006-9 sets forth

procedures for a manufacturer (or, in the

case of a foreign vehicle manufacturer, its

domestic distributor) that has received an

acknowledgment of its certification from

the Service to submit to the Service a report of the number of qualified plug-in

Bulletin No. 2020–35

electric drive motor vehicles sold by the

manufacturer (or, in the case of a foreign

vehicle manufacturer, its domestic distributor) to consumers or retail dealers during

the calendar quarter.

Section 6.03 of Notice 2006-9 provides

the address to which a vehicle manufacturer (or, in the case of a foreign vehicle

manufacturer, its domestic distributor)

must send certifications and quarterly reports under Notice 2006-9.

On March 24, 2008, the Service published Notice 2008-33, which sets forth a

similar procedure to that in Notice 20069 for fuel cell motor vehicle that allows a

vehicle manufacturer (or, in the case of a

foreign vehicle manufacturer, its domestic

distributor) to certify to the Service that a

vehicle of a particular make, model, and

model year meets the requirements for the

fuel cell motor vehicle under § 30B(a)(1)

and (b).

The Energy Policy Act of 2005, Pub.

L. 109-58, 119 Stat. 594, added § 30B,

allowing a credit for certain alternative

motor vehicles. The Consolidated Appropriations Act, 2016, Pub. L. 114-113, 129

Stat. 2242, extended the § 30B(a)(1) credit for qualified fuel cell motor vehicles

credit for qualified vehicles acquired after

December 31, 2014, and before January 1,

2017. The Bipartisan Budget Act of 2018,

Pub. L. 115-123, 132 Stat 2242, extended

the § 30B(a)(1) credit for qualified fuel

cell motor vehicles credit for qualified vehicles acquired after December 31, 2016,

and before January 1, 2018. The Further

Consolidated Appropriations Act of 2020,

Pub. L. 116-94, 133 Stat 2534, extended

the § 30B(a)(1) credit for qualified fuel

cell motor vehicles credit for qualified vehicles acquired after December 31, 2017,

and before January 1, 2021.

This notice modifies both Notice 20069 and Notice 2008-33 by providing an

updated address for taxpayers who wish

491

to submit to the Service the material described in those notices.

SECTION 3. MODIFICATION TO

NOTICE 2006-9 AND NOTICE 2008-33

This notice modifies the address in Section 6.03 of Notice 2006-9 and in Section

6.02 of Notice 2008-33 to read as follows:

Internal Revenue Service

Director, Eastern Compliance Practice

Area

2001 Butterfield Road, Mail Stop 5413

Downers Grove, IL 60515

In the future, please refer to www.irs.

gov for any changes to this address.

SECTION 4. EFFECTIVE DATE

This notice is effective for certifications and quarterly reports submitted under Notice 2006-9 and Notice 2008-33

after [Date of Publication].

SECTION 5. EFFECT ON OTHER

DOCUMENTS

Notice 2006-9 and Notice 2008-33

are modified as provided in this notice.

Except as explicitly provided, this notice

does not otherwise affect the guidance or

procedures provided in Notice 2006-9 and

Notice 2008-33.

SECTION 6. DRAFTING

INFORMATION

The principal author of this notice is

Christopher F. Price of the Office of Associate Chief Counsel (Passthroughs &

Special Industries). For further information regarding this notice, contact Mr.

Price on (202) 317-6853 (not a toll-free

number).

August 24, 2020

Part IV

Swiss-U.S. Competent

Authority Arrangement

Regarding Treaty

Arbitration Clause

Announcement 2020-13

The following is a copy of the Competent Authority Arrangement entered

into by the competent authorities of the

United States of America and Switzerland, regarding the implementation of

the arbitration process provided for in

paragraphs 6 and 7 of Article 25 of the

Convention Between the United States

of America and the Swiss Confederation

for the Avoidance of Double Taxation

with respect to Taxes on Income signed

at Washington on October 2, 1996, as

Amended by the Protocols signed on October 2, 1996, and September 23, 2009

(the “Convention”) and the exchange of

notes accompanying the 2009 Protocol

which is annexed to the Convention as

Annex A and which forms an integral

part of the Convention.

The text of the Competent Authority

Arrangement is as follows:

IMPLEMENTING ARRANGEMENT

REGARDING PARAGRAPHS 6

AND 7 OF ARTICLE 25 OF THE

CONVENTION BETWEEN THE

UNITED STATES OF AMERICA AND

THE SWISS CONFEDERATION

FOR THE AVOIDANCE OF DOUBLE

TAXATION WITH REPECT TO

TAXES ON INCOME

Introduction

The competent authorities of Switzerland and of the United States of America

have established this arrangement to implement the arbitration process provided

for in paragraphs 6 and 7 of Article 25

of the Convention Between the United

States of America and the Swiss Confederation for the Avoidance of Double

Taxation with respect to Taxes on Income signed at Washington on October

2, 1996, as Amended by the Protocols

signed on October 2, 1996, and Septem-

August 24, 2020

ber 23, 2009 (the “Convention”) and the

exchange of notes accompanying the

2009 Protocol which is annexed to the

Convention as Annex A (“Treaty Annex

A”) and which forms an integral part of

the Convention.

Subject to certain exceptions described

in paragraph 4, this arbitration process

applies to cases that the competent authorities of Switzerland and the United

States have determined are suitable for

assistance under the mutual agreement

procedure of Article 25 of the Convention

in accordance with published guidance,

in the case of Switzerland the “Factsheet

on the mutual agreement procedure” of

May 2018 or any amendment or successor

provisions thereof, and in the case of the

United States, Revenue Procedure 201540 or any amendment or successor provisions thereof.

This arrangement is adopted in accordance with paragraphs 6 and 7 of Article

25 of the Convention and subparagraphs

a) and q) of paragraph 1 of the Treaty Annex A.

The competent authorities of both Contracting States, the presenter of the case,

and the arbitrators will follow the procedures in this arrangement in good faith.

1. Definitions

A. “MAP” is the abbreviation for

the Mutual Agreement Procedure

proceedings of competent authorities under Article 25 of the

Convention.

B. The term “Concerned Person”

means the presenter of a case to

a competent authority for consideration under Article 25 of the

Convention and all other persons, if any, whose tax liability

to either Contracting State may

be directly affected by a mutual

agreement arising from that consideration.

C. The “Commencement Date”

for a case is the earliest date on

which the information necessary

to undertake substantive consideration for a mutual agreement

has been received by the competent authorities of both Contracting States. The Commencement Date will be determined

492

2.

3.

4.

in accordance with paragraph 5

or, with respect to a case originally submitted as a request for

an advance pricing arrangement

(“APA”), in accordance with

paragraph 21.

Competent Authority Assistance in

General

A. A request for competent authority assistance must comply with

the requirements as set out for

the United States in Revenue

Procedure 2015-40, or subsequent guidance, and for Switzerland in the “Factsheet on the

mutual agreement procedure” of

May 2018, or any applicable subsequent guidance.

B. Taxpayers shall submit their requests for competent authority

assistance pursuant to Article 25,

paragraph 1 of the Convention.

Cases Eligible for Arbitration

A. According to paragraphs 6 and

7 of Article 25 of the Convention, arbitration will be available

where:

1. pursuant to a mutual agreement procedure under Article 25 of the Convention the

competent authorities have

endeavored but are unable to

reach a complete agreement;

and

2. all the requirements prescribed in paragraphs 6 and

7 of Article 25 of the Convention, paragraph 1 of the

Treaty Annex A, and this arrangement are satisfied.

B. An unresolved competent authority request which originated

with a bilateral APA request will

be subject to arbitration procedures in accordance with paragraph 21.

C. Once a case is accepted into

the MAP, neither competent authority will cease unilaterally to

consider a case, except for the

circumstances described in paragraph 4.

Cases Not Eligible for Arbitration

A. Arbitration is not available for

cases that a competent authority

Bulletin No. 2020–35

has not accepted, or in which a

competent authority ceases to

provide assistance, in accordance

with the Convention, the Protocol or published guidance.

1. The Swiss competent authority will generally not

accept a request for competent authority assistance or

will generally cease providing assistance to a taxpayer, and thus not provide for

arbitration if the taxpayer

does not comply with the

requirements or under circumstances as described in

the “Factsheet on the mutual agreement procedure” of

May 2018 (or any applicable

subsequent guidance).

2. The U.S. competent authority generally will not accept

a request for competent authority assistance or will

cease providing assistance

to a taxpayer, and thus not

provide for arbitration in

the circumstances described

in section 7.02 (Denial and

Termination of Assistance)

of Revenue Procedure 201540 (or any applicable subsequent guidance). In addition,

the U.S. competent authority

will not provide for arbitration for a case in which the

taxpayer has reached a settlement on the issue with

IRS Appeals (including an

Appeals settlement through

the Appeals arbitration process) or with Chief Counsel pursuant to an executed

closing agreement or other

written agreement such as

Form 870-AD, unless otherwise permitted by Revenue

Procedure 2015 40 (or any

applicable subsequent guidance).

B. Arbitration is not available for

cases that have been accepted

for competent authority consideration, but for which the competent authorities agree that the

particular case is not suitable for

determination by arbitration and

Bulletin No. 2020–35

have notified the presenter of the

case of such decision before the

date on which arbitration proceedings would otherwise begin.

C. Arbitration is not available where

a decision with respect to an unresolved case has been rendered

by a court or administrative tribunal of either Contracting State.

5. Commencement Date

A. Within 60 days of receipt of a

MAP request for assistance each

competent authority will review

the request and verify whether

it contains the information necessary to undertake substantive

consideration for a mutual agreement, pursuant to subparagraph

b) of paragraph 7 of Article 25 of

the Convention.

B. If a competent authority determines that the request for assistance is not complete, that competent authority will inform the

taxpayer in writing within 60

days of receipt of the request,

what information is necessary

consistent with Rev. Proc. 201540 (or subsequent guidance) or

the information required under

Switzerland’s “Factsheet on the

mutual agreement procedure” of

May 2018 (or subsequent guidance).

C. Once complete information is

provided, each competent authority will inform the other

competent authority of the date

it received the information necessary to undertake substantive

consideration for a mutual agreement. The latter of these dates

will be the Commencement Date,

except as described in paragraph

21 with respect to cases that originated as an APA.

D. Contemporaneously, the competent authorities will confirm with

each other that each has received

the same information.

E. When the Commencement Date

is established:

1. the competent authorities of

both Contracting States will

exchange correspondence

with each other confirming

the Commencement Date

493

and

6.

the

date

the

arbitration

proceedings potentially shall

begin for any subsequently

necessary arbitration, and

2. each competent authority

will inform the Concerned

Person(s) resident in its

territory in writing of the

Commencement Date and

the date the arbitration proceedings potentially shall

begin for any subsequently

necessary arbitration.

Date Arbitration Proceedings Begin

A. An arbitration proceeding with

respect to a case will begin on a

date (hereinafter “Date Arbitration Proceedings Begin”) which

is the latest of:

1. two years after the Commencement Date of that

case, unless both competent

authorities have previously

agreed to a different date

and notified the presenter of

the case (as provided in subparagraphs B and C), and

2. the earliest date upon which

the nondisclosure agreements have been received

by both competent authorities. (See subparagraph c) of

paragraph 7 of Article 25 of

the Convention.)

B. As provided in Article 25(7)(c)(i)

of the Convention, the competent

authorities of both Contracting

States may decide that the Date

Arbitration Proceedings Begin

with respect to a case should be

earlier or later than what it would

have been without such decision

in appropriate situations. Such

appropriate situations could be,

for example, where the competent authorities are close to

reaching a mutual agreement

to resolve the case, where there

has been a delay by a Concerned

Person in providing information

in the MAP of the case, where

MAP is suspended by a request

from the presenter of the case, or

where a Concerned Person has

provided significant new information after the Commencement

Date of the case.

August 24, 2020

7.

C. If the competent authorities of

both Contracting States decide

the Date Arbitration Proceedings Begin with respect to a

case under subparagraph B,

then the competent authorities

will confirm that date in writing

to each other and to the Concerned Persons resident in their

territory.

Confidentiality

According to subparagraph c) of

paragraph 6 and subparagraphs d)

and f) of paragraph 7 of Article 25 of

the Convention and subparagraphs

d) and n) of paragraph 1 of the Treaty Annex A, the confidentiality of a

case will be maintained in the following manner:

A. All Concerned Persons and their

authorized representatives or

agents must agree prior to the

beginning of arbitration proceedings not to disclose to any other

person any information received

during the course of the arbitration proceeding from the competent authorities of either Contracting State or the arbitration

panel, other than the determination of the panel.

B. No information relating to an arbitration proceeding (including

the determination of the arbitration panel) may be disclosed

by the members of the arbitration panel or their staffs or by

the competent authorities of the

Contracting States, except as

permitted by the Convention and

the domestic laws of the Contracting States. In addition, all

material prepared in the course

of, or relating to, an arbitration

proceeding will be considered

to be information exchanged

between the competent authorities pursuant to Article 26 of the

Convention.

C. For purposes of an arbitration

proceeding under paragraphs 6

and 7 of Article 25 of the Convention, the members of arbitration panel (hereinafter referred to

as “arbitrators”) and their staffs

will be considered to be “persons

or authorities” to whom informa-

August 24, 2020

8.

tion may be disclosed under Article 26 of the Convention.

D. The competent authorities of

both Contracting States will ensure that all arbitrators (and any

of their staff which will assist

them in carrying on the arbitration), prior to their acting in

an arbitration proceeding, agree

in a Declaration of Arbitrator

specified by both of the competent authorities (see, e.g., Attachment 4 to this arrangement)

to not disclose any information

relating to an arbitration proceeding (including the determination of the arbitration panel),

and to abide by and be subject

to the confidentiality and nondisclosure provisions of Article

26 of the Convention and similar provisions of relevant domestic laws of the Contracting

States. However, the members

of the arbitration panel or their

staff will disclose the determination of the arbitration panel to

the competent authorities. In the

event those provisions conflict,

the most restrictive condition

shall apply. The arbitrators must

send their staff’s non-disclosure

agreement to both of the competent authorities.

Eligibility of Arbitrators

A. In order to be eligible as an arbitrator:

1. the individual is not an employee nor has been an employee within the twelvemonth period prior to the

Date Arbitration Proceedings Begin of the tax administration, the Treasury Department, or the Ministry of

Finance of the Contracting

State which identifies him or

her;

2. the individual does not have

any prior involvement with

the specific matters at issue

in the arbitration proceeding

for which he or she is being

considered as an arbitrator;

and

3. in addition, the individual

who will serve as the chair

494

9.

of the arbitration panel

(“Chair”) is not a citizen or

resident of either Contracting State.

B. The competent authorities of

both Contracting States will

identify and jointly agree on 5 to

10 persons who are qualified and

willing to serve as the Chair of an

arbitration panel. The competent

authorities will review and revise

this list as necessary every three

years or earlier if required.

C. The arbitrator must maintain the

impartiality and independence

conditions set out in clauses 1 to

3 of subparagraph A throughout

the proceedings and avoid any

conduct for 12 months after the

date the arbitration panel delivers

its decision under paragraph 18

which may damage the appearance of impartiality and independence.

D. The arbitrators will undertake to

promptly disclose to both competent authorities, in writing, any

new facts or circumstances that

arise during or following the arbitration proceedings that might

give rise to doubts with respect

to their impartiality or independence.

E. The staff person of an arbitrator

will be subject to the same conflict of interest rules applicable

to the arbitrators as described in

subparagraph A of paragraph 8.

Appointment of Arbitrators

A. Each competent authority of the

Contracting States will appoint

one arbitrator to the arbitration panel by sending a written

communication (that includes a

copy of the Declaration of Arbitrator identified in subparagraph

D of paragraph 7, signed by the

arbitrator) indicating their appointment to the other competent authority within 90 days of

the Date Arbitration Proceedings Begin. (See subparagraph

e) of paragraph 1 of the Treaty

Annex A).

B. In the event that the competent

authority of a Contracting State

fails to make such appointment

Bulletin No. 2020–35

in the manner and within the

time period in this paragraph,

the appointed arbitrator shall

contact the competent authority

that appointed him or her. That

competent authority shall contact the highest-ranking member

of the Secretariat at the Centre

for Tax Policy and Administration of the Organization for

Economic Co-operation and

Development (OECD) who is

not a citizen or resident of either Switzerland or the United

States, who shall appoint an arbitrator by written notice to both

countries within 60 days of the

date of such failure.

C. The procedure in subparagraph

B will not apply, where the failure of such appointment within

the period in subparagraph A is

due to the fact that an individual who had agreed to serve as

an arbitrator becomes unable to

serve because of circumstances

outside his or her control (for

example, death, serious illness

or natural disaster). The competent authorities of both Contracting States will determine

the appropriate time period for

the appointment of an arbitrator

in such a case.

D. Within 60 days of the date on

which the second communication of the country-appointed

arbitrator is sent, the arbitrators so appointed will appoint a

third arbitrator who shall serve

as Chair of the panel among the

list established pursuant to subparagraph B of paragraph 8. The

third arbitrator so selected will

inform the competent authorities of both Contracting States

of his or her appointment as

soon as possible and send the

Declaration of Arbitrator to the

competent authorities. The competent authority which received

the request for assistance will

inform the presenter of the case

of the date of the Chair’s appointment.

E. If the two initial arbitrators fail

to select the third arbitrator in

Bulletin No. 2020–35

the manner and within the time

period in this paragraph, the two

initial arbitrators will be dismissed, and each competent authority of the Contracting States

will select a new arbitrator of

the arbitration panel within 30

days of the dismissal of the original members.

F. The procedure in subparagraph

E will not apply, where the failure of such selection within the

time period in subparagraph D is

due to the fact that the individual selected to serve as Chair becomes unable to serve because of

circumstances outside his or her

control (for example, death, serious illness or natural disaster).

In such a case, unless otherwise

decided, the two arbitrators will

appoint a third arbitrator to serve

as Chair from among the list of

candidates described in subparagraph B of paragraph 8.

G. The arbitrators will be selected

from individuals who:

1. satisfy the eligibility requirements identified in subparagraph A of paragraph 8

at the time of accepting an

appointment to serve, and

are reasonably expected to

remain so during the entire

arbitration proceeding and

for a reasonable time thereafter in accordance with subparagraph C of paragraph 8;

and

2. have significant experience

in international tax matters

(he or she need not, however, have experience as either

a judge or arbitrator).

H. An arbitrator will be deemed appointed on the date on which he

or she signs the Declaration of

Arbitrator of intent to so serve

required by subparagraph D of

paragraph 7, such Declaration

of Arbitrator to be in the form

agreed by the competent authorities of both Contracting States.

I. Where one of the two initial arbitrators becomes ineligible for

service as an arbitrator (e.g., violates the Declaration of Arbitra-

495

tor identified in subparagraph D

of paragraph 7) or for any other

reason it is necessary to replace

an arbitrator after the arbitrator

was appointed, the competent

authority who had selected that

individual will select a replacement as soon as possible and no

later than 30 days after the position becomes vacant.

J. Where the third arbitrator (the

Chair) becomes ineligible for

service as an arbitrator (e.g., violates the Declaration of Arbitrator identified in subparagraph D

of paragraph 7) or for any other

reason it is necessary to replace

the third arbitrator after he or she

was appointed, the two initial

arbitrators will select a replacement among the list established

pursuant to subparagraph B of

paragraph 8 as soon as possible

and no later than 14 days after

the position becomes vacant.

K. If any arbitrator is unable to fulfill his or her duties, the competent authorities will consult with

the remaining panel members

to determine a new timetable, if

necessary.

L. Should it come to light that an

arbitrator has a conflict of interest which would have prevented

that arbitrator’s original appointment, the arbitrator must recuse

himself or herself from consideration of the case and inform the

competent authorities.

10. Terms of Reference

A. As soon as possible after the

Date Arbitration Proceedings

Begin, the competent authorities

of both Contracting States will

develop a brief Statement of

Information which will identify the Concerned Person(s) and

contain a general description

of the proposed adjustments or

similar issues to be resolved in a

case. The competent authority of

a Contracting State, or an arbitrator selected by the competent

authority of a Contracting State,

may disclose the Statement of

Information, if the confidentiality of the information is ensured

August 24, 2020

by first obtaining an Affirmation

of Confidentiality (see, e.g., Attachment 5 to this arrangement)

and such disclosure is permitted

by the law of the Contracting

State, to a candidate to be an

arbitrator of the case to check

whether that candidate satisfies the eligibility requirements

identified in subparagraph A of

paragraph 8.

B. The competent authorities of

both Contracting States undertake to develop, within 30 days

after the Date Arbitration Proceedings Begin, a “Terms of Reference” for a case to include:

1. description of the relevant

business activities of the

Concerned Person(s);

2. description of the adjustments or similar issues in

dispute in the case;

3. description of the matters to

be considered for the resolution of the case; including

identification of all matters in the case previously

agreed between the competent authorities; and

4. a description of the final

position taken by each competent authority in the negotiation of the unresolved

matters which prevent the

mutual agreement between

the competent authorities.

The competent authorities may

also provide logistical or procedural information in the Terms of

Reference.

C. The Terms of Reference will be

communicated to the Chair on

the date of his or her appointment, or as soon thereafter as

possible.

D. If the Terms of Reference has

not been completed by the date

for submission of the Proposed

Resolutions and Position Papers,

the competent authorities of both

Contracting States will send to

the Chair their most recent written proposals for the Terms of

Reference along with their Proposed Resolutions and Position

Papers. All the matters identi-

August 24, 2020

fied as unresolved in these draft

Terms of References are treated

as unresolved for the purpose of

the subsequent proceedings.

11. Proposed Resolutions, Position Papers, and Reply Submissions

A. As provided in subparagraph g)

of paragraph 1 of the Treaty Annex A, the competent authority

of each of the Contracting States

will be permitted to submit a Proposed Resolution, not to exceed

five pages in total, addressing

each adjustment or similar issue

raised in a case. Such Proposed

Resolution will be a resolution of

the entire case, and will reflect,

without modification, all matters

in the case previously agreed between the competent authorities

of both Contracting States. Such

Proposed Resolution will be limited to a disposition of the specific monetary amounts of income,

expense or taxation reportab

This text is long and has been trimmed here. Open the source document for the complete record.