Bulletin No. 2021–18

HIGHLIGHTS

OF THIS ISSUE





Bulletin No. 2021–18

May 3, 2021

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

Announcement 2021-8, page 1146.

The Office of Professional Responsibility (OPR) announces recent disciplinary sanctions involving attorneys, certified public accountants, enrolled agents, enrolled actuaries, enrolled

retirement plan agents, and appraisers. These individuals are

subject to the regulations governing practice before the Internal Revenue Service (IRS), which are set out in Title 31, Code

of Federal Regulations, Part 10, and which are published in

pamphlet form as Treasury Department Circular No. 230.

The regulations prescribe the duties and restrictions relating

to such practice and prescribe the disciplinary sanctions for

violating the regulations.

ADMINISTRATIVE, EMPLOYMENT TAX

by reason of section 9501(a)(1) of the American Rescue

Plan Act.

EMPLOYEE PLANS

Notice 2021-27, page 1125.

This notice sets forth updates on the corporate bond monthly yield curve, the corresponding spot segment rates for

April 2021 used under § 417(e)(3)(D), the 24-month average

segment rates applicable for April 2021, and the 30-year

Treasury rates, as reflected by the application of § 430(h)

(2)(C)(iv). In addition, it contains 24-month average segment

rates for January 2020 through April 2021 determined under § 430(h)(2)(C)(iv) reflecting the modifications made by §

9706(a) of the American Rescue Plan Act of 2021.

INCOME TAX

Notice 2021-24, page 1122.

This notice that amplifies the guidance in Notice 2020-22,

2020-17 I.R.B. 664, which provides for penalty relief under section 6656 of the Code for an employer’s failure to

timely deposit Employment Taxes with the IRS. This notice

provides relief from section 6656 for employers required

to pay qualified sick leave wages and qualified family leave

wages, and qualified health plan expenses allocable to

these wages, mandated by the Families First Coronavirus

Response Act, as amended by the COVID-related Tax Relief

Act of 2020, and the American Rescue Plan Act of 2021

(American Rescue Plan Act). This notice also provides relief

from section 6656 for certain employers subject to a full

or partial closure order due to COVID-19 or experiencing a

statutorily specified decline in business under the Coronavirus Aid, Relief, and Economic Security Act, as amended

by the Taxpayer Certainty and Disaster Tax Relief Act of

2020 and the American Rescue Plan Act. Finally, this notice

provides relief from section 6656 for certain employers for

which COBRA continuation coverage premiums were not

paid by assistance eligible individuals for such coverage

Finding Lists begin on page ii.

REG-121095-19, page 1131.

The Opportunity Zone (“OZ”) provision allows taxpayers under certain circumstances to defer capital gain that they

reinvest in qualified opportunity funds. These proposed regulations include requirements that certain foreign persons

and certain foreign-owned partnerships must meet to defer

their capital gains. The proposed regulations also allow, under certain circumstances, for the reduction or elimination

of withholding tax under certain Code sections on the capital gain that is deferred under the OZ provision. In addition,

these regulations provide flexibility for qualified opportunity

zone businesses regarding the working capital safe harbor

in the case of Federally declared disasters. REG-121095-19.

Published [INSERT PUBLICATION DATE].

Rev. Rul. 2021-8, page 1120.

Federal rates; adjusted federal rates; adjusted federal longterm rate, and the long-term tax exempt rate. For purposes

of sections 382, 1274, 1288, 7872 and other sections of

the Code, tables set forth the rates for May 2021.

SPECIAL ANNOUNCEMENT

Notice 2021-28, page 1130.

This notice requests public recommendations for published

guidance projects to be included on the 2021-2022 Priority

Guidance Plan.

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.

May 3, 2021 

Bulletin No. 2021–18

Part I

Section 1274.—

Determination of Issue

Price in the Case of Certain

Debt Instruments Issued for

Property

(Also Sections 42, 280G, 382, 467, 468, 482, 483,

1288, 7520, 7872.)

Rev. Rul. 2021-8

This revenue ruling provides various prescribed rates for federal income

Annual

AFR

110% AFR

120% AFR

130% AFR

0.13%

0.14%

0.16%

0.17%

AFR

110% AFR

120% AFR

130% AFR

150% AFR

175% AFR

1.07%

1.18%

1.28%

1.39%

1.62%

1.88%

AFR

110% AFR

120% AFR

130% AFR

2.16%

2.38%

2.60%

2.82%

Short-term adjusted AFR

Mid-term adjusted AFR

Long-term adjusted AFR

May 3, 2021

tax purposes for May 2021 (the current

month). Table 1 contains the shortterm, mid-term, and long-term applicable federal rates (AFR) for the current

month for purposes of section 1274(d)

of the Internal Revenue Code. Table 2

contains the short-term, mid-term, and

long-term adjusted applicable federal

rates (adjusted AFR) for the current

month for purposes of section 1288(b).

Table 3 sets forth the adjusted federal long-term rate and the long-term

tax-exempt rate described in section

382(f). Table 4 contains the appropri-

ate percentages for determining the

low-income housing credit described in

section 42(b)(1) for buildings placed in

service during the current month. However, under section 42(b)(2), the applicable percentage for non-federally subsidized new buildings placed in service

after July 30, 2008, shall not be less

than 9%. Finally, Table 5 contains the

federal rate for determining the present

value of an annuity, an interest for life

or for a term of years, or a remainder or

a reversionary interest for purposes of

section 7520.

REV. RUL. 2021-8 TABLE 1

Applicable Federal Rates (AFR) for May 2021

Period for Compounding

Semiannual

Quarterly

Short-term

0.13%

0.13%

0.14%

0.14%

0.16%

0.16%

0.17%

0.17%

Mid-term

1.07%

1.07%

1.18%

1.18%

1.28%

1.28%

1.39%

1.39%

1.61%

1.61%

1.87%

1.87%

Long-term

2.15%

2.14%

2.37%

2.36%

2.58%

2.57%

2.80%

2.79%

Annual

0.10%

0.81%

1.64%

REV. RUL. 2021-8 TABLE 2

Adjusted AFR for May 2021

Period for Compounding

Semiannual

0.10%

0.81%

1.63%

1120

Monthly

0.13%

0.14%

0.16%

0.17%

1.07%

1.18%

1.28%

1.39%

1.60%

1.86%

2.14%

2.36%

2.57%

2.78%

Quarterly

0.10%

0.81%

1.63%

Monthly

0.10%

0.81%

1.62%

Bulletin No. 2021–18

REV. RUL. 2021-8 TABLE 3

Rates Under Section 382 for May 2021

Adjusted federal long-term rate for the current month

Long-term tax-exempt rate for ownership changes during the current month (the highest of

the adjusted federal long-term rates for the current month and the prior two months.)

1.64%

1.64%

REV. RUL. 2021-8 TABLE 4

Appropriate Percentages Under Section 42(b)(1) for May 2021

Note: Under section 42(b)(2), the applicable percentage for non-federally subsidized new buildings placed in service after July

30, 2008, shall not be less than 9%.

Appropriate percentage for the 70% present value low-income housing credit

7.37%

Appropriate percentage for the 30% present value low-income housing credit

3.16%

REV. RUL. 2021-8 TABLE 5

Rate Under Section 7520 for May 2021

Applicable federal rate for determining the present value of an annuity, an interest for life or a

term of years, or a remainder or reversionary interest

Section 42.—Low-Income

Housing Credit

The applicable federal short-term, mid-term,

and long-term rates are set forth for the month of

May 2021. See Rev. Rul. 2021-8, page 1120.

Section 280G.—Golden

Parachute Payments

The applicable federal short-term, mid-term,

and long-term rates are set forth for the month of

May 2021. See Rev. Rul. 2021-8, page 1120.

Section 382.—Limitation

on Net Operating Loss

Carryforwards and

Certain Built-In Losses

Following Ownership

Change

The adjusted applicable federal long-term rate

is set forth for the month of May 2021. See Rev.

Rul. 2021-8, page 1120.

Section 467.—Certain

Payments for the Use of

Property or Services

The applicable federal short-term, mid-term,

and long-term rates are set forth for the month of

May 2021. See Rev. Rul. 2021-8, page 1120.

Section 468.—Special

Rules for Mining and Solid

Waste Reclamation and

Closing Costs

The applicable federal short-term rates are set

forth for the month of May 2021. See Rev. Rul.

2021-8, page 1120.

Section 482.—Allocation

of Income and Deductions

Among Taxpayers

The applicable federal short-term, mid-term,

and long-term rates are set forth for the month of

May 2021. See Rev. Rul. 2021-8, page 1120.

1.2%

Section 483.—Interest on

Certain Deferred Payments

The applicable federal short-term, mid-term,

and long-term rates are set forth for the month of

May 2021. See Rev. Rul. 2021-8, page 1120.

Section 1288.—Treatment

of Original Issue Discount

on Tax-Exempt Obligations

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of

May 2021. See Rev. Rul. 2021-8, page 1120.

Section 7520.—Valuation

Tables

The applicable federal mid-term rates are set

forth for the month of May 2021. See Rev. Rul.

2021-8, page 1120.

Section 7872.—Treatment

of Loans With BelowMarket Interest Rates

The applicable federal short-term, mid-term,

and long-term rates are set forth for the month of

May 2021. See Rev. Rul. 2021-8, page 1120.

Bulletin No. 2021–18

1121

May 3, 2021

Part III

Relief from Penalty

for Failure to Deposit

Employment Taxes

Notice 2021-24

d.

SECTION 1. PURPOSE

This notice amplifies the guidance

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

which provides for penalty relief under

section 6656 of the Internal Revenue

Code (Code) for an employer’s failure to

timely deposit Employment Taxes1 with

the Internal Revenue Service (IRS). This

notice extends the penalty relief provided

in Notice 2020-22 to apply to deposits of

Employment Taxes reduced in anticipation of the following credits:

a. Paid sick and family leave credits

under the Families First Coronavirus

Response Act (Families First Act),

Pub. L. No. 116-127, 134 Stat. 179

_ (March 18, 2020), as amended by

the COVID-related Tax Relief Act

of 2020 (Tax Relief Act), enacted as

Subtitle B of the Consolidated Appropriations Act, 2021 (Appropriations Act), Pub. L. No. 116-260, 134

Stat. 1182 (December 27, 2020), with

respect to qualified leave wages paid

with respect to the period beginning

January 1, 2021, and ending March

31, 2021;

b. Paid sick and family leave credits

under sections 3131, 3132, and 3133

of the Code, added by section 9641

of the American Rescue Plan Act of

2021 (ARP), Pub. L. No. 117-2, 135

Stat. 4 (March 11, 2021), with respect

to qualified leave wages paid with

respect to the period beginning April

1, 2021, and ending September 30,

2021;

c. The employee retention credit under

section 2301 of the Coronavirus Aid,

Relief, and Economic Security Act

(CARES Act), Pub. L. No. 116-136,

134 Stat. 281 (March 27, 2020), as

amended by the Taxpayer Certainty

1

e.

and Disaster Tax Relief Act of 2020

(Relief Act), enacted as Division EE

of the Appropriations Act, with respect to qualified wages paid with respect to the period beginning January

1, 2021, and ending June 30, 2021;

The employee retention credit under

section 3134 of the Code, added by

section 9651 of the ARP, with respect

to qualified wages paid with respect

to the period beginning July 1, 2021,

and ending December 31, 2021; and

The credit for Continuation Coverage

Premium Assistance under section

6432 of the Code, as added by section 9501(b) of the ARP, for COBRA

continuation coverage premiums not

paid by assistance eligible individuals

for such coverage by reason of section 9501(a)(1) of the ARP during the

period beginning April 1, 2021, and

ending September 30, 2021.

SECTION 2. BACKGROUND

Section 3111(a) of the Code (employer’s share of the Old Age, Survivors, and

Disability Insurance (social security) portion of FICA tax), section 3111(b) of the

Code (employer’s share of the Hospital Insurance (Medicare) portion of FICA tax),

section 3221(a) of the Code (employer’s

share of the social security and Medicare

portions of RRTA tax), and section 3402

of the Code related to Federal income tax

withholding impose Employment Tax liability on employers. For most employers,

this liability is reported on the quarterly

Form 941, Employer’s QUARTERLY

Federal Tax Return.

Although Form 941 is due quarterly,

section 6302 of the Code and regulations

under that section generally require deposits of Employment Taxes to be made on a

monthly or semiweekly basis. Employers

that accumulate $100,000 or more of Employment Taxes on any day within a deposit period are required to deposit those

liabilities with the IRS the next banking

day. See § 31.6302-1(c) of the Employment Taxes and Collection of Income Tax

at Source Regulations.

Paid Sick and Family Leave Credits

The Families First Act generally required employers of fewer than 500 employees to provide paid sick leave and

expanded family and medical leave, up to

specified limits, to employees unable to

work or telework due to certain circumstances related to COVID-19, through

December 31, 2020. Generally, employers

that were required to pay qualified sick

leave wages and qualified family leave

wages by the Families First Act (collectively, Qualified Leave Wages), as well as

qualified health plan expenses allocable to

Qualified Leave Wages (Qualified Health

Plan Expenses) under the Families First

Act are entitled to refundable tax credits

administered by the IRS.

The Tax Relief Act did not extend

the requirement to provide the Qualified

Leave Wages and Qualified Health Plan

Expenses, but did extend the refundable

tax credits for Qualified Leave Wages

and Qualified Health Plan Expenses, with

modifications, paid for periods of leave

after December 31, 2020, and before April

1, 2021, that would have been required to

have been paid if the requirement to provide such leave had been extended.

Specifically, sections 7001 and 7003

of the Families First Act, as amended by

the Tax Relief Act, provide refundable tax

credits against an employer’s share of the

social security portion of FICA tax, and so

much of the Railroad Retirement Tax Act

Tier 1 rate as is attributable to an employer’s share of the social security portion of

FICA tax, for each calendar quarter in an

amount equal to the Qualified Leave Wages paid by the employer plus Qualified

Health Plan Expenses with respect to that

calendar quarter, with respect to periods

of leave beginning on April 1, 2020, and

ending on March 31, 2021. For purposes

of this notice, an employer’s share of the

social security portion of FICA tax and so

much of the Railroad Retirement Tax Act

Tier 1 rate as is attributable to an employer’s share of the social security portion

of FICA tax, as applicable, are referred

to as Creditable Employer Social Securi-

“Employment Taxes” means withheld income taxes, taxes under the Federal Insurance Contributions Act (FICA), and taxes under the Railroad Retirement Tax Act (RRTA).

May 3, 2021

1122

Bulletin No. 2021–18

ty Taxes. The credits under section 7001

and 7003 are increased by the amount of

the employer’s share of Medicare tax (or

the portion of the Railroad Retirement Tax

Act Tier 1 rate as is attributable to the employer’s share of Medicare tax) imposed

on Qualified Leave Wages. See section

7005(b)(1) of the Families First Act. For

purposes of this notice, the increase in the

credit under section 7005(b)(1) is treated

as a credit under section 7001 or section

7003.

The ARP added sections 3131 and

3132 to the Code, under which eligible employers can claim refundable tax

credits for qualified sick leave wages and

qualified family leave wages, respectively, with respect to periods of leave beginning on April 1, 2021, and ending on

September 30, 2021 (also referred to as

Qualified Leave Wages for the remainder

of this notice). The refundable tax credits under sections 3131 and 3132 of the

Code apply against an employer’s share

of the Medicare portion of FICA tax, and

so much of the Railroad Retirement Tax

Act Tier 1 rate as is attributable to the

employer’s share of Medicare tax, which

for purposes of this notice, are referred to

as Creditable Employer Medicare Taxes.

The refundable tax credits are increased

by the health plan expenses (also referred

to as Qualified Health Plan Expenses for

the remainder of this notice) and certain

collectively bargained contributions paid

by an eligible employer that are properly

allocable to the related Qualified Leave

Wages (Qualified Collectively Bargained

Contributions), and both the employer’s

share of the social security and Medicare

portions of FICA tax (and the employer’s share of the Railroad Retirement Tax

Act Tier 1 rate) imposed on the Qualified

Leave Wages. See I.R.C. § § 3131(d),

3131(e), 3132(d), 3133(e), and 3133. For

purposes of this notice, the increase in

the credit under section 3133 is treated

as a credit under section 3131 or 3132 of

the Code.

The refundable tax credits under section 7001 and 7003 of the Families First

Act and sections 3131 and 3132 of the

Code are reported on the employer’s re-

turn for reporting its liability for FICA

tax or RRTA tax, as applicable, which

for most employers subject to FICA tax

is the quarterly Form 941. An employer

may claim an advance payment of the refundable tax credits by filing Form 7200,

Advance Payment of Employer Credits

Due to COVID-19, in accordance with the

instructions to the form.

Employee Retention Credits

Section 2301 of the CARES Act, as

originally enacted, provided for an employee retention credit for eligible employers that pay qualified wages, including certain health plan expenses, to some

or all employees after March 12, 2020, and

before January 1, 2021. Eligible employers were allowed to claim a refundable

tax credit under the CARES Act for fifty

percent of qualified wages paid, limited

to $10,000 per employee over all calendar

quarters combined in 2020 (Qualified Retention Wages).

Section 206 of the Relief Act amended

section 2301 of the CARES Act to modify

the employee retention credit for qualified

wages paid after March 12, 2020, and before January 1, 2021, primarily relating

to who may claim the credit. Section 207

of the Relief Act further amended section

2301 of the CARES Act to modify and

extend the application of the employee retention credit for qualified wages paid after December 31, 2020, and before July 1,

2021. Under section 2301 of the CARES

Act, as amended by section 207 of the Relief Act, eligible employers can claim a refundable tax credit for seventy percent of

qualified wages paid, limited to $10,000

per employee per calendar quarter in 2021

for the first and second calendar quarters

of 2021 (also referred to as Qualified Retention Wages for the remainder of this

notice).

Section 9651 of the ARP enacted section 3134 of the Code, which provides a

substantially similar employee retention

credit for qualified wages paid after June

30, 2021, and before January 1, 2022. Under section 3134 of the Code, eligible employers can claim a refundable tax credit

for seventy percent of qualified wages

paid, limited to $10,000 per employee per

calendar quarter in 2021 for the third and

fourth calendar quarters of 2021 (also referred to as Qualified Retention Wages for

the remainder of this notice).

The refundable tax credit under section

2301 of the CARES Act applies against

Creditable Employer Social Security Taxes for each calendar quarter. The refundable tax credit under section 3134 of the

Code applies against Creditable Employer

Medicare Taxes for each calendar quarter.

The refundable tax credits under section

2301 of the CARES Act, as amended, and

section 3134 of the Code are reported on

the employer’s return for reporting its liability for FICA tax or RRTA tax, as applicable, which for most employers subject

to FICA tax is the quarterly Form 941. For

calendar quarters in 2021, eligible small

employers may claim an advance payment

of the refundable tax credits for Qualified

Retention Wages under section 2301 of

the CARES Act and section 3134 of the

Code by filing Form 7200 in accordance

with the instructions to the form.

COBRA Continuation Coverage Premium

Assistance Credit

Section 9501(b) of the ARP added section 6432 of the Code2 which provides a

refundable tax credit for premiums payable for COBRA continuation coverage

under section 9501(a)(1). The credit is calculated with respect to premiums not paid

by assistance eligible individuals for such

coverage by reason of section 9501(a)(1)

during the period beginning April 1, 2021,

and ending September 30, 2021.

The refundable tax credit applies

against Creditable Employer Medicare

Taxes for each calendar quarter. The refundable tax credit is reported on the employer’s return for reporting its liability

for FICA tax or RRTA tax, as applicable,

which for most employers subject to FICA

tax is the quarterly Form 941. An employer may claim an advance payment of the

refundable tax credit by filing Form 7200

in accordance with the instructions to the

form.

A version of section 6432 was originally added to the Code in 2009 by section 3001 of the American Recovery and Reinvestment Act of 2009 (ARRA), Pub. Law 111-5, 123 Stat. 115

(February 17, 2009) (ARRA). Section 6432 was repealed by section 401(d)(7)(A) of Division U of Title IV of the Consolidated Appropriations Act, 2018, Pub. Law 115-141, 132 Stat. 348

(March 23, 2018).

2

Bulletin No. 2021–18

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May 3, 2021

Failure to Deposit Penalty Relief

Section 6656 of the Code imposes a

penalty for any failure to deposit amounts

as required by the Code or regulations on

the date prescribed therefor, unless such

failure is due to reasonable cause and not

due to willful neglect. A failure to deposit

taxes as required under section 6302 of the

Code would generally subject an employer to the section 6656 penalty.

Sections 7001(i) and 7003(i) of the

Families First Act (as added by section

3606(a) and (c) of the CARES Act) and

section 2301(k) of the CARES Act instruct

the Secretary of the Treasury or her delegate (Secretary) to waive the penalty under

section 6656 of the Code for failure to deposit the Creditable Employer Social Security Taxes in anticipation of the allowance

of the refundable tax credits allowed under

the Families First Act and the CARES Act,

respectively. Sections 3131(i), 3132(i),

3134(k) and 6432(c)(2)(C) of the Code

instruct the Secretary to waive the penalty

under section 6656 of the Code for failure

to deposit Creditable Employer Medicare

Taxes in anticipation of the allowance of

the refundable tax credits allowed under

sections 3131, 3132, 3134 and 6432 of the

Code, respectively. Furthermore, sections

7001(f) and 7003(f) of the Families First

Act and sections 3131(g)(3) and 3132(g)

(3) of the Code specifically authorize guidance providing for penalty relief for failure

to deposit amounts in anticipation of the

allowance of the credits provided by the

Families First Act and sections 3131 and

3132 of the Code, respectively. Section 3 of

this notice provides relief from the penalty

under section 6656 pursuant to the Families First Act, the CARES Act, and sections

3131(i), 3132(i), 3134(k), and 6432(c)(2)

(C) of the Code.

SECTION 3. RELIEF FROM FAILURE

TO MAKE A DEPOSIT OF TAXES

a. Reduced Deposits for Paid Sick and

Family Leave Credit

An employer will not be subject to a

penalty under section 6656 for failing to

deposit Employment Taxes in a calendar

quarter if—

(1) The employer paid Qualified Leave

Wages, Qualified Health Plan Expenses,

May 3, 2021

or Qualified Collectively Bargained Contributions with respect to the period beginning on April 1, 2021, and ending on

September 30, 2021, to its employees in

the calendar quarter prior to the time of

the required deposit,

(2) The amount of Employment Taxes

that the employer does not timely deposit

is less than or equal to the amount of the

employer’s anticipated credits under sections 7001 and 7003 of the Families First

Act or sections 3131 and 3132 of the Code

for the calendar quarter as of the time of

the required deposit, and

(3) The employer did not seek payment

of an advance credit by filing Form 7200

with respect to the anticipated credits it relied upon to reduce its deposits.

Thus, an employer may reduce without

a penalty under section 6656 of the Code

the amount of a deposit of Employment

Taxes by the amount of the paid sick or

family leave credit anticipated for the calendar quarter prior to the required deposit,

as long as the employer does not also seek

an advance credit with regard to the same

amount.

For purposes of this section 3.a of this

notice, the total amount of any reduction

in any required deposit may not exceed

the total amount of the employer’s anticipated credit under section 7001 or 7003

of the Families First Act or section 3131

or 3132 of the Code as of the time of the

required deposit, minus any amount of

such anticipated credits that had previously been used (1) to reduce a prior required

deposit in the calendar quarter and obtain

the relief provided by this notice or (2) to

seek payment of an advance credit.

b. Reduced Deposits for the Employee

Retention Credit

An eligible employer will not be subject to a penalty under section 6656 for

failing to deposit Employment Taxes in a

calendar quarter if—

(1) The employer paid Qualified Retention Wages with respect to the period

beginning January 1, 2021 and ending December 31, 2021, to its employees in the

calendar quarter prior to the time of the

required deposit,

(2) The amount of Employment Taxes

that the employer does not timely deposit, reduced by the amount of Employment

1124

Taxes not deposited in anticipation of the

credits claimed under sections 7001 and

7003 of the Families First Act or sections

3131 and 3132 of the Code (as described

in section 3.a of this notice), is less than or

equal to the amount of the employer’s anticipated credits under section 2301 of the

CARES Act or section 3134 of the Code

for the calendar quarter as of the time of

the required deposit, and

(3) The employer did not seek payment

of an advance credit by filing Form 7200,

with respect to the anticipated credits it relied upon to reduce its deposits.

Thus, after a reduction, if any, of a deposit of Employment Taxes by the amount

of the anticipated paid sick or family leave

credits, an employer may further reduce,

without a penalty under section 6656 of

the Code, the amount of the deposit of

Employment Taxes by the amount of the

employer’s employee retention credit

anticipated for the calendar quarter prior to the required deposit, as long as the

employer does not also seek an advance

credit with regard to the same amount.

For purposes of this section 3.b of this

notice, the total amount of any reduction

in any required deposit may not exceed the

total amount of the employer’s anticipated

credit under section 2301 of the CARES

Act or section 3134 of the Code as of the

time of the required deposit, minus any

amount of such anticipated credit that had

previously been used (1) to reduce a prior

required deposit in the calendar quarter and

obtain the relief provided by this notice or

(2) to seek payment of an advance credit.

c. Reduced Deposits for the COBRA

Continuation Coverage Premium

Assistance Credit

An employer will not be subject to a

penalty under section 6656 for failing to

deposit Employment Taxes in a calendar

quarter if—

(1) The employer is a “person to whom

premiums are payable” under section

6432(b) of the Code,

(2) The amount of Employment Taxes

that the employer does not timely deposit, reduced by the amount of Employment

Taxes not deposited in anticipation of the

credits claimed under sections 7001 and

7003 of the Families First Act or sections

3131 and 3132 of the Code (as described

Bulletin No. 2021–18

in section 3.a of this notice), and the credits

claimed under section 2301 of the CARES

Act or section 3134 of the Code (as described in section 3.b of this notice), is less

than or equal to the amount of the employer’s anticipated credits under section 6432

of the Code for the calendar quarter as of

the time of the required deposit, and

(3) The employer did not seek payment

of an advance credit by filing Form 7200

with respect to the anticipated credits it relied upon to reduce its deposits.

Thus, after a reduction, if any, of a deposit of Employment Taxes by the amount

of the anticipated paid sick or family leave

credits and the anticipated employee retention credit, an employer may further

reduce without a penalty under section

6656 of the Code the amount of the deposit of Employment Taxes by the amount

of the employer’s COBRA continuation

coverage premium assistance credit anticipated for the calendar quarter prior to the

required deposit, as long as the employer

does not also seek an advance credit with

regard to the same amount.

For purposes of this section 3.c of this

notice, the total amount of any reduction

in any required deposit may not exceed

the total amount of the employer’s anticipated credit under section 6432 of the

Code in the calendar quarter as of the time

of the required deposit, minus any amount

of such anticipated credit that had previously been used (1) to reduce a prior required deposit in the calendar quarter and

obtain the relief provided by this notice or

(2) to seek payment of an advance credit.

Update for Weighted

Average Interest Rates,

Yield Curves, and Segment

Rates

Notice 2021-27

This notice provides guidance on the

corporate bond monthly yield curve, the

corresponding spot segment rates used

under § 417(e)(3), and the 24-month average segment rates under § 430(h)(2) of the

Internal Revenue Code. In addition, this

notice provides guidance as to the interest

rate on 30-year Treasury securities under

§ 417(e)(3)(A)(ii)(II) as in effect for plan

years beginning before 2008 and the 30year Treasury weighted average rate under

§ 431(c)(6)(E)(ii)(I).

In addition to providing these rates

for current periods, this notice provides

24-month average segment rates for earlier periods for plan years beginning

in 2020 and 2021, determined under §

430(h)(2)(C)(iv) of the Code reflecting the

modifications made by § 9706(a) of the

American Rescue Plan Act of 2021, Pub.

L. No. 117-2 (ARP), which was enacted

on March 11, 2021.

YIELD CURVE AND SEGMENT

RATES

SECTION 4. EFFECT ON OTHER

DOCUMENTS

Notice 2020-22 is amplified.

SECTION 5. CONTACT

INFORMATION

The principal author of this notice is

Michael A. Franklin of the Office of the

Applicable Month

April 2021

Associate Chief Counsel (Procedure and

Administration). For further information,

please contact Mr. Franklin at (202) 3175436 (not a toll-free number).

Section 430 specifies the minimum

funding requirements that apply to single-employer plans (except for CSEC

plans under § 414(y)) pursuant to § 412.

Section 430(h)(2) specifies the interest rates that must be used to determine

a plan’s target normal cost and funding

target. Under this provision, present value is generally determined using three

24-month average interest rates (“segment rates”), each of which applies to

cash flows during specified periods. To

the extent provided under § 430(h)(2)

(C)(iv), these segment rates are adjusted

by the applicable percentage of the 25year average segment rates for the period

ending September 30 of the year preceding the calendar year in which the plan

year begins.1 However, an election may

be made under § 430(h)(2)(D)(ii) to use

the monthly yield curve in place of the

segment rates.

Notice 2007-81, 2007-44 I.R.B. 899,

provides guidelines for determining the

monthly corporate bond yield curve, and

the 24-month average corporate bond segment rates used to compute the target normal cost and the funding target. Consistent

with the methodology specified in Notice

2007-81, the monthly corporate bond

yield curve derived from March 2021 data

is in Table 2021-3 at the end of this notice.

The spot first, second, and third segment

rates for the month of March 2021 are, respectively, 0.69, 2.92, and 3.69.

The 24-month average segment rates

determined under § 430(h)(2)(C)(i)

through (iii) must be adjusted pursuant to

§ 430(h)(2)(C)(iv) to be within the applicable minimum and maximum percentages of the corresponding 25-year average

segment rates.

The 25-year average segment rates for

plan years beginning in 2020 and 2021

were published Notice 2019-51, 2019-41

I.R.B. 866, and Notice 2020-72, 2020-40

I.R.B. 789, respectively.

24-MONTH AVERAGE CORPORATE

BOND SEGMENT RATES

The three 24-month average corporate

bond segment rates applicable for March

2021 without adjustment for the 25-year

average segment rate limits are as follows:

24-Month Average Segment Rates Without 25-Year Average Adjustment

First Segment

Second Segment

1.45

2.85

Third Segment

3.52

Pursuant to § 433(h)(3)(A), the 3rd segment rate determined under § 430(h)(2)(C) is used to determine the current liability of a CSEC plan (which is used to calculate the minimum amount

of the full funding limitation under § 433(c)(7)(C)).

1

Bulletin No. 2021–18

1125

May 3, 2021

25-YEAR AVERAGE SEGMENT

RATES

Section 9706(a) of ARP changes the

25-year average segment rates and the

applicable minimum and maximum percentages used under § 430(h)(3)(C)(iv) of

the Code to adjust the 24-month average

segment rates. Prior to this change, the applicable minimum and maximum percentages were 90% and 110% for a plan year

beginning in 2020, and 85% and 115% for

a plan year beginning in 2021, respectively. After this change, the applicable minimum and maximum percentages are 95%

and 105% for a plan year beginning in

For Plan Years

Beginning In

2020 or 2021. In addition, pursuant to this

change, any 25-year average segment rate

that is less than 5% is deemed to be 5%.2

Pursuant to § 9706(c)(1) of ARP, these

changes apply with respect to plan years

beginning on or after January 1, 2020.

However, § 9706(c)(2) of ARP provides

that a plan sponsor may elect not to have

these changes apply to any plan year beginning before January 1, 2022.3

The adjusted 24-month average segment rates reflecting § 430(h)(2)(C)(iv) of

the Code as amended by § 9706(a) of ARP

for January 2020 through March 2021, applicable for plan years beginning in 2020

and 2021, are set forth in the Appendix.

The adjusted 24-month average segment rates set forth in the chart below

reflect § 430(h)(2)(C)(iv) of the Code as

amended by § 9706(a) of ARP. These adjusted 24-month average segment rates

apply only for plan years for which an

election under § 9706(c)(2) of ARP is not

in effect. For a plan year for which such an

election does not apply, the 24-month averages applicable for April 2021, adjusted

to be within the applicable minimum and

maximum percentages of the corresponding 25-year average segment rates in accordance with § 430(h)(2)(C)(iv) of the

Code, are as follows:

Adjusted 24-Month Average Segment Rates

Applicable

First

Second

Month

Segment

Segment

Third

Segment

2020

April 2021

4.75

5.50

6.27

2021

April 2021

4.75

5.36

6.11

The adjusted 24-month average segment rates set forth in the chart below do

not reflect the changes to § 430(h)(2)(C)

(iv) of the Code made by § 9706(a) of

ARP. These adjusted 24-month average

For Plan Years

Beginning In

segment rates apply only for plan years for

which an election under § 9706(c)(2) of

ARP is in effect. For a plan year for which

such an election applies, the 24-month averages applicable for April 2021, adjusted

to be within the applicable minimum and

maximum percentages of the corresponding 25-year average segment rates in accordance with § 430(h)(2)(C)(iv) of the

Code, are as follows:

Pre-ARP Adjusted 24-Month Average Segment Rates

Applicable

First

Second

Month

Segment

Segment

Third

Segment

2020

April 2021

3.64

5.21

5.94

2021

April 2021

3.32

4.79

5.47

30-YEAR TREASURY SECURITIES

INTEREST RATES

Section 431 specifies the minimum

funding requirements that apply to multiemployer plans pursuant to § 412. Section

431(c)(6)(B) specifies a minimum amount

for the full-funding limitation described in

§ 431(c)(6)(A), based on the plan’s current

liability. Section 431(c)(6)(E)(ii)(I) pro-

vides that the interest rate used to calculate

current liability for this purpose must be

no more than 5 percent above and no more

than 10 percent below the weighted average of the rates of interest on 30-year Treasury securities during the four-year period

ending on the last day before the beginning

of the plan year. Notice 88-73, 1988-2 C.B.

383, provides guidelines for determining

the weighted average interest rate. The

rate of interest on 30-year Treasury securities for March 2021 is 2.34 percent. The

Service determined this rate as the average

of the daily determinations of yield on the

30-year Treasury bond maturing in February 2051. For plan years beginning in April

2021, the weighted average of the rates of

interest on 30-year Treasury securities and

the permissible range of rates used to calculate current liability are as follows:

For Plan Years

Beginning In

Treasury Weighted Average Rates

30-Year Treasury

Weighted Average

Permissible Range

90% to 105%

April 2021

2.24

2.02 to 2.36

Pursuant to this change, the 25-year averages of the first segment rate for 2020 and 2021 are increased to 5.00% because those 25-year averages as originally published are below 5.00%.

This election may be made either for all purposes for which the amendments under § 9706 of ARP apply or solely for purposes of determining the adjusted funding target attainment percentage under § 436 of the Code for the plan year.

2

3

May 3, 2021

1126

Bulletin No. 2021–18

MINIMUM PRESENT VALUE

SEGMENT RATES

In general, the applicable interest rates

Month

March 2021

ent value segment rates. Pursuant to that

notice, the minimum present value segment rates determined for March 2021 are

as follows:

Minimum Present Value Segment Rates

First Segment

Second Segment

0.69

2.92

DRAFTING INFORMATION

The principal author of this notice is

Tom Morgan of the Office of the Asso-

Bulletin No. 2021–18

under § 417(e)(3)(D) are segment rates

computed without regard to a 24-month

average. Notice 2007-81 provides guidelines for determining the minimum pres-

ciate Chief Counsel (Employee Benefits,

Exempt Organizations, and Employment

Taxes). However, other personnel from

the IRS participated in the development

1127

Third Segment

3.69

of this guidance. For further information

regarding this notice, contact Mr. Morgan

at 202-317-6700 or Paul Stern at 202-3178702 (not toll-free numbers).

May 3, 2021

Table 2021-3

Monthly Yield Curve for March 2021

Derived from March 2021 Data

Maturity

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0

9.5

10.0

10.5

11.0

11.5

12.0

12.5

13.0

13.5

14.0

14.5

15.0

15.5

16.0

16.5

17.0

17.5

18.0

18.5

19.0

19.5

20.0

Yield

0.20

0.26

0.34

0.44

0.56

0.70

0.85

1.01

1.17

1.33

1.50

1.66

1.82

1.98

2.12

2.26

2.40

2.52

2.63

2.74

2.83

2.92

3.00

3.07

3.13

3.18

3.23

3.28

3.31

3.34

3.37

3.40

3.42

3.44

3.45

3.47

3.48

3.49

3.50

3.51

May 3, 2021

Maturity

20.5

21.0

21.5

22.0

22.5

23.0

23.5

24.0

24.5

25.0

25.5

26.0

26.5

27.0

27.5

28.0

28.5

29.0

29.5

30.0

30.5

31.0

31.5

32.0

32.5

33.0

33.5

34.0

34.5

35.0

35.5

36.0

36.5

37.0

37.5

38.0

38.5

39.0

39.5

40.0

Yield

3.52

3.53

3.54

3.54

3.55

3.56

3.56

3.57

3.58

3.58

3.59

3.59

3.60

3.60

3.61

3.61

3.62

3.62

3.63

3.63

3.64

3.64

3.65

3.65

3.66

3.66

3.66

3.67

3.67

3.68

3.68

3.68

3.69

3.69

3.69

3.69

3.70

3.70

3.70

3.71

Maturity

40.5

41.0

41.5

42.0

42.5

43.0

43.5

44.0

44.5

45.0

45.5

46.0

46.5

47.0

47.5

48.0

48.5

49.0

49.5

50.0

50.5

51.0

51.5

52.0

52.5

53.0

53.5

54.0

54.5

55.0

55.5

56.0

56.5

57.0

57.5

58.0

58.5

59.0

59.5

60.0

Yield

3.71

3.71

3.71

3.72

3.72

3.72

3.72

3.73

3.73

3.73

3.73

3.73

3.74

3.74

3.74

3.74

3.74

3.75

3.75

3.75

3.75

3.75

3.75

3.76

3.76

3.76

3.76

3.76

3.76

3.77

3.77

3.77

3.77

3.77

3.77

3.77

3.77

3.78

3.78

3.78

1128

Maturity

60.5

61.0

61.5

62.0

62.5

63.0

63.5

64.0

64.5

65.0

65.5

66.0

66.5

67.0

67.5

68.0

68.5

69.0

69.5

70.0

70.5

71.0

71.5

72.0

72.5

73.0

73.5

74.0

74.5

75.0

75.5

76.0

76.5

77.0

77.5

78.0

78.5

79.0

79.5

80.0

Yield

3.78

3.78

3.78

3.78

3.78

3.79

3.79

3.79

3.79

3.79

3.79

3.79

3.79

3.79

3.79

3.80

3.80

3.80

3.80

3.80

3.80

3.80

3.80

3.80

3.80

3.80

3.81

3.81

3.81

3.81

3.81

3.81

3.81

3.81

3.81

3.81

3.81

3.81

3.81

3.81

Maturity

80.5

81.0

81.5

82.0

82.5

83.0

83.5

84.0

84.5

85.0

85.5

86.0

86.5

87.0

87.5

88.0

88.5

89.0

89.5

90.0

90.5

91.0

91.5

92.0

92.5

93.0

93.5

94.0

94.5

95.0

95.5

96.0

96.5

97.0

97.5

98.0

98.5

99.0

99.5

100.0

Yield

3.82

3.82

3.82

3.82

3.82

3.82

3.82

3.82

3.82

3.82

3.82

3.82

3.82

3.82

3.82

3.82

3.83

3.83

3.83

3.83

3.83

3.83

3.83

3.83

3.83

3.83

3.83

3.83

3.83

3.83

3.83

3.83

3.83

3.83

3.83

3.83

3.84

3.84

3.84

3.84

Bulletin No. 2021–18

Appendix

Adjusted 24-Month Average Segment Rates Reflecting ARP for Plan Years Beginning in 2020

First Segment

4.75

4.75

4.75

4.75

4.75

4.75

4.75

4.75

4.75

4.75

4.75

4.75

4.75

4.75

4.75

January 2020

February 2020

March 2020

April 2020

May 2020

June 2020

July 2020

August 2020

September 2020

October 2020

November 2020

December 2020

January 2021

February 2021

March 2021

Second Segment

5.50

5.50

5.50

5.50

5.50

5.50

5.50

5.50

5.50

5.50

5.50

5.50

5.50

5.50

5.50

Third Segment

6.27

6.27

6.27

6.27

6.27

6.27

6.27

6.27

6.27

6.27

6.27

6.27

6.27

6.27

6.27

Adjusted 24-Month Average Segment Rates Reflecting ARP for Plan Years Beginning in 2021

September 2020

October 2020

November 2020

December 2020

January 2021

February 2021

March 2021

Bulletin No. 2021–18

First Segment

4.75

4.75

4.75

4.75

4.75

4.75

4.75

Second Segment

5.36

5.36

5.36

5.36

5.36

5.36

5.36

1129

Third Segment

6.11

6.11

6.11

6.11

6.11

6.11

6.11

May 3, 2021

Public Recommendations

Invited on Items to be

Included on the 2021-2022

Priority Guidance Plan

Notice 2021-28

The Department of the Treasury (Treasury Department) and the Internal Revenue Service (Service) invite the public to

submit recommendations for items to be

included on the 2021-2022 Priority Guidance Plan.

The Treasury Department’s Office of

Tax Policy and the Service use the Priority Guidance Plan each year to identify

and prioritize the tax issues that should

be addressed through regulations, revenue rulings, revenue procedures, notices,

and other published administrative guidance. The 2021-2022 Priority Guidance

Plan will identify guidance projects that

the Treasury Department and the Service intend to actively work on as priorities during the period from July 1, 2021,

through June 30, 2022.

The Treasury Department and the

Service recognize the importance of

public input in formulating a Priority

Guidance Plan that focuses resources

on guidance items that are most important to taxpayers and tax administration.

Published guidance plays an important

role in increasing voluntary compliance

by helping to clarify ambiguous areas

of the tax law. The published guidance

process is most successful if the Treasury Department and the Service have

the benefit of the experience and knowledge of taxpayers and practitioners who

must apply the rules implementing the

tax laws.

This solicitation reflects an emphasis

on taxpayer engagement with the Treasury Department and the Service through

a variety of channels, consistent with the

May 3, 2021

directive of the Taxpayer First Act, Pub.

L. 116-25, 133 Stat. 981.

In reviewing recommendations and selecting additional projects for inclusion on

the 2021-2022 Priority Guidance Plan, the

Treasury Department and the Service will

consider the following:

1. Whether the recommended guidance

resolves significant issues relevant to

a broad class of taxpayers;

2. Whether the recommended guidance

reduces controversy and lessens the

burden on taxpayers or the Service;

3. Whether the recommended guidance

relates to recently enacted legislation;

4. Whether the recommendation involves existing regulations or other

guidance that is outdated, unnecessary, ineffective, insufficient, or

unnecessarily burdensome and that

should be modified, streamlined, expanded, replaced, or withdrawn;

5. Whether the recommended guidance

promotes sound tax administration;

6. Whether the Service can administer

the recommended guidance on a uniform basis; and

7. Whether the recommended guidance

can be drafted in a manner that will

enable taxpayers to easily understand

and apply the guidance.

Please submit recommendations for

guidance by Friday, May 28, 2021, for

possible inclusion on the original 20212022 Priority Guidance Plan. Taxpayers

may, however, submit recommendations

for guidance at any time during the year.

The Treasury Department and the Service will update the 2021-2022 Priority

Guidance Plan periodically to reflect additional guidance that the Treasury Department and the Service intend to publish or

have published during the plan year. The

periodic updates allow the Treasury Department and the Service to respond in a

timely manner to the need for additional

guidance that may arise during the plan

year.

1130

Taxpayers are not required to submit

recommendations for guidance in any

particular format. Taxpayers should, however, briefly describe the recommended

guidance and explain the need for the guidance. In addition, taxpayers may include

an analysis of how the issue should be resolved. For recommendations to modify,

streamline, or withdraw existing regulations or other guidance, taxpayers should

explain how the changes would reduce

taxpayer cost and/or burden or benefit tax

administration. It would be helpful if taxpayers suggesting more than one guidance

project prioritize the projects by order of

importance. If a large number of projects

are being suggested, it would be helpful if

the projects were grouped by subject matter and then in terms of high, medium, or

low priority. Requests for guidance in the

form of petitions for rulemaking will be

considered with other recommendations

for guidance in accordance with the considerations described in this notice.

Taxpayers are strongly encouraged to

submit recommendations for guidance

electronically via the Federal eRulemaking Portal at www.regulations.gov (type

IRS-2021-0004 in the search field on the

regulations.gov homepage to find this notice and submit recommendations). Taxpayers submitting recommendations by

mail should send them to:

Internal Revenue Service

Attn: CC:PA:LPD:PR (Notice 2021-28)

Room 5203

P.O. Box 7604

Ben Franklin Station

Washington, D.C. 20044

All recommendations for guidance

submitted by the public in response to

this notice will be available for public inspection and copying in their entirety. For

further information regarding this notice,

contact Emily M. Lesniak of the Office of

the Associate Chief Counsel (Procedure

and Administration) at (202) 317-5409

(not a toll-free number).

Bulletin No. 2021–18

Part IV

Notice of Proposed

Rulemaking

Requirements for Certain

Foreign Persons and

Certain Foreign-Owned

Partnerships Investing

in Qualified Opportunity

Funds and Flexibility for

Working Capital Safe

Harbor Plans

REG-121095-19

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Notice of proposed rulemaking.

SUMMARY: This document contains

proposed regulations that include requirements that certain foreign persons and

certain foreign-owned partnerships must

meet in order to elect the Federal income

tax benefits provided by section 1400Z-2

of the Internal Revenue Code (Code). This

document also contains proposed regulations that allow, under certain circumstances, for the reduction or elimination of

withholding under section 1445, 1446(a),

or 1446(f) of the Code on transfers that

give rise to gain that is deferred under section 1400Z-2(a). Finally, this document

contains additional guidance regarding

the 24-month extension of the working

capital safe harbor in the case of Federally declared disasters. The proposed regulations affect qualified opportunity funds

and their investors.

DATES: Written or electronic comments

and requests for a public hearing must be

received by June 11, 2021. Requests for a

public hearing must be submitted as prescribed in the “Comments and Requests

for Public Hearing” section.

ADDRESSES: Commenters are strongly

encouraged to submit public comments

electronically. Submit electronic submissions via the Federal eRulemaking Portal

Bulletin No. 2021–18

at www.regulations.gov (indicate IRS and

REG-121095-19) by following the online

instructions for submitting comments.

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

withdrawn. The IRS expects to have limited personnel available to process public

comments that are submitted on paper

through the mail. Until further notice,

any comments submitted on paper will

be considered to the extent practicable.

The Department of the Treasury (Treasury Department) and the IRS will publish for public availability any comment

submitted electronically, and to the extent

practicable on paper, to its public docket.

Send paper submissions to: CC:PA:LPD:PR (REG-121095-19), room 5203,

Internal Revenue Service, PO Box 7604,

Ben Franklin Station, Washington, D.C.

20044.

FOR FURTHER INFORMATION

CONTACT:

Concerning

proposed

§ §1.1400Z2(a)-2 and 1.1445-3, Milton

Cahn at (202) 317-4934; concerning proposed § §1.1446-3, 1.1446-6 and 1.14467, Ronald Gootzeit at (202) 317-4953;

concerning proposed § 1.1446(f)-2, Subin

Seth at (202) 317-5003; concerning proposed § §1.1400Z2(a)-1(a), 1.1400Z2(b)1(c), and 1.1400Z2(d)-1(d), Erika Reigle

at (202) 317-7006; concerning submissions of comments and/or requests for a

public hearing, Regina L. Johnson, (202)

317-5177 (not toll free numbers).

SUPPLEMENTARY INFORMATION:

Background

This document contains proposed

amendments to 26 CFR part 1 under

sections 1400Z-2, 1445, and 1446 (proposed regulations). Section 13823 of

Public Law 115-97, 131 Stat. 2054, 2184

(2017), commonly referred to as the Tax

Cuts and Jobs Act (TCJA), added sections

1400Z-1 and 1400Z-2 to the Code. The

purposes of section 1400Z-2 and the section 1400Z-2 regulations (that is, the final

regulations set forth in § §1.1400Z2(a)-1

through 1.1400Z2(f)-1, 1.1502-14Z, and

1.1504-3) are to provide specified Federal

1131

income tax benefits to owners of qualified

opportunity funds (QOFs) to encourage

the making of longer-term investments,

through QOFs and qualified opportunity

zone businesses, of new capital in one or

more qualified opportunity zones designated under section 1400Z-1 and to increase economic growth in such qualified

opportunity zones. See § 1.1400Z2(f)-1(c)

(1) (describing the purposes of section

1400Z-2 and the section 1400Z-2 regulations; Notice 2018-48, 2018-28 I.R.B. 9,

and Notice 2019-42, 2019-29 I.R.B. 352

(setting forth the combined list of population census tracts designated as qualified

opportunity zones).

Section 1400Z-1 provides the procedural rules for designating qualified opportunity zones and related definitions.

Section 1400Z-2 provides two main tax

incentives to encourage investment in

qualified opportunity zones. See section

1400Z-2(b) and (c). First, a taxpayer,

upon making a valid election, may generally defer, until the earlier of an inclusion

event or December 31, 2026, certain gains

in gross income that would otherwise be

recognized in the tax year if the taxpayer

invests a corresponding amount in a qualifying investment in a QOF within 180

days of the date of the sale or exchange.

See section 1400Z-2(b)(1)(A) and (B).

The taxpayer may potentially exclude ten

percent of such deferred gain from gross

income if the taxpayer holds the qualifying investment in the QOF for at least

five years. See section 1400Z-2(b)(2)(B)

(iii). An additional five percent of such

gain may potentially be excluded from

gross income if the taxpayer holds the

qualifying investment for at least seven

years. See section 1400Z-2(b)(2)(B)(iv).

Second, a taxpayer, upon making a second

valid election under section 1400Z-2(c),

may also exclude from gross income any

appreciation on the taxpayer’s qualifying

investment in the QOF if the qualifying

investment is held for at least ten years.

Section 1400Z-2(e)(4) provides that the

Secretary of the Treasury or his delegate

shall prescribe regulations as may be necessary or appropriate to carry out the purposes of section 1400Z-2, including rules

to prevent abuse.

May 3, 2021

On October 29, 2018, the Treasury Department and the IRS published in the Federal Register (83 FR 54279) a notice of

proposed rulemaking (REG-115420-18)

providing guidance under section 1400Z2 for investing in qualified opportunity

funds (83 FR 54279 (October 29, 2018))

(October 2018 proposed regulations). A

second notice of proposed rulemaking

(REG-120186-18) was published in the

Federal Register (84 FR 18652) on May

1, 2019, containing additional proposed

regulations under section 1400Z-2 (May

2019 proposed regulations). The May

2019 proposed regulations also updated

portions of the October 2018 proposed

regulations. On January 13, 2020, final regulations (TD 9889) under section

1400Z-2 were published in the Federal

Register (85 FR 1866, as corrected at 85

FR 19082), effective for taxable years

beginning after March 13, 2020 (section

1400Z-2 regulations).

Under the section 1400Z-2 regulations,

a taxpayer qualifies for deferral under section 1400Z-2(a) only if the taxpayer is an

eligible taxpayer. Section 1.1400Z2(a)1(a)(1). An eligible taxpayer is defined

as a person that is required to report the

recognition of gains during the taxable

year under Federal income tax accounting

principles. Section 1.1400Z2(a)-1(b)(13).

If an eligible taxpayer that is a partnership does not elect to defer gain, a partner of such partnership may elect to defer

its distributive share of the gain. Section

1.1400Z2(a)-1(c)(8).

The section 1400Z-2 regulations provide that only gains that are eligible gains

may be deferred. Section 1.1400Z2(a)1(b)(11). In general, an eligible gain is

gain that (i) is treated as a capital gain or

is a qualified 1231 gain, (ii) would be recognized for Federal income tax purposes

and subject to tax under subtitle A of the

Code before January 1, 2027, if section

1400Z-2(a)(1) did not apply to defer the

gain, and (iii) does not arise from a sale

or exchange of property with certain related persons. Id. Thus, for example, a

nonresident alien individual or foreign

corporation generally may make a deferral

election with respect to an item of capital

gain that is effectively connected with a

U.S. trade or business, because this gain

otherwise is subject to Federal income

tax. When a partnership chooses to make

May 3, 2021

a deferral election, the section 1400Z-2

regulations provide an exception to the

general requirement that gain be subject to

Federal income tax in order to constitute

eligible gain, subject to an anti-abuse rule.

Section 1.1400Z2(a)-1(b)(11)(ix)(B).

Foreign persons are generally subject

to U.S. income tax on amounts that are effectively connected with the conduct of a

trade or business within the United States

(ECI). A foreign person that directly or indirectly is engaged in a trade or business

in the United States must file a U.S. income tax return and pay any tax due.

To ensure the collection of tax, in certain circumstances, the Code imposes

withholding requirements on payments or

allocations of ECI to foreign persons. See

sections 1445, 1446(a), and 1446(f). The

amount of withholding under these provisions is intended to serve as a proxy for the

amount of the foreign person’s substantive

tax liability and may not match the actual

amount of tax due. The amount withheld

may be claimed as a credit against the

amount of tax due and shown on the foreign person’s tax return.

Specifically, section 1445(a) requires a

transferee to withhold tax on a disposition

of a United States real property interest

(as defined in section 897(c)) (U.S. real

property interest) by a foreign person.

Generally, the transferee must withhold 15

percent of the amount realized and deposit the tax with the IRS within 20 days of

the transfer. Certain exceptions and reductions to the rate of withholding can apply,

including by the foreign person obtaining

a withholding certificate from the IRS to

reduce or eliminate the amount required to

be withheld on the transfer.

Section 1445(e)(1) requires a domestic

partnership, trust, or estate that disposes

of a United States real property interest to

withhold on any portion of the gain that is

allocable to a foreign partner or beneficiary. The rate of withholding is the highest

rate of tax in effect under section 11(b)

(currently 21 percent).

Section 1445(e)(2) requires a foreign

corporation that recognizes gain on the

distribution of a United States real property interest to withhold on the gain at the

highest rate of tax in effect under section

11(b).

Section 1445(e)(3) requires a domestic corporation that is or has been a

1132

United States real property holding corporation to withhold 15 percent of a distribution to a nonresident alien or foreign

corporation.

Section 1445(e)(6) requires a qualified

investment entity to withhold at the highest rate of tax specified in section 11(b) on

the amount of the distribution that is treated as gain from the sale or exchange of a

United States real property interest.

Section 1446(a) generally requires a

partnership to withhold tax on effectively

connected taxable income as determined

under § 1.1446-2 (ECTI) allocable to a

foreign partner, with limited adjustments,

regardless of whether the income is distributed to the partner (section 1446(a)

tax). A partnership must generally withhold section 1446(a) tax on a foreign partner’s allocable share of ECTI at the highest rate of tax specified in section 1 (for a

foreign partner other than a corporation)

or section 11(b) (for a foreign partner that

is a corporation). A partnership is generally required to pay the section 1446(a) tax

in four installment payments. The partnership may consider certain partner-level

deductions and losses as a reduction to the

ECTI on which it must withhold section

1446(a) tax. See § 1.1446-6.

Section 1446(f) requires withholding

under certain circumstances in connection

with a disposition of a partnership interest.

Specifically, if, on a disposition (which includes a distribution from a partnership to

a partner) of a partnership interest, section

864(c)(8) treats any portion of a foreign

partner’s gain as effectively connected

gain, section 1446(f) requires the transferee to withhold tax equal to 10 percent of

the amount realized, unless an exemption

or reduced rate of withholding applies.

The transferee must deposit the tax with

the IRS within 20 days of the transfer.

See § 1.1446(f)-2. For purposes of section

1446(f), a transferor may in certain cases

certify to the transferee that the transfer

is not subject to withholding or otherwise

qualifies for an exception to withholding

or an adjustment to the amount required to

be withheld. Id.

Under sections 33 and 1462, a foreign

person subject to withholding under section 1445, 1446(a), or 1446(f) may credit

the amount withheld against the amount

of income tax liability shown on the person’s tax return.

Bulletin No. 2021–18

Explanation of Provisions

I. Overview of Proposed Regulations

These proposed regulations provide requirements for certain foreign persons and

certain foreign-owned partnerships investing in QOFs and flexibility for working capital safe harbor plans.

II. Requirements for Certain Foreign

Persons and Certain Foreign-owned

Partnerships Investing in QOFs

A. Coordination of the deferral election

under section 1400Z-2(a) with the

withholding rules under sections 1445,

1446(a) and 1446(f)

The existing section 1400Z-2 regulations do not coordinate the deferral

election under section 1400Z-2(a) with

the withholding rules in sections 1445,

1446(a), and 1446(f). Generally, these

withholding provisions subject a foreign

person to withholding to ensure the collection of tax due to the increased risk of

noncompliance by a person that is not a

United States person. In general, the withholding may be claimed as a credit or

refund when the foreign person files its

return and pays any substantive tax due.

Thus, a foreign person subject to withholding that elects to defer gain under section 1400Z-2(a) may be entitled to apply

the credit for withholding against tax on

other income or claim a refund for the year

in which withholding was applied, as the

foreign person will not be required to pay

substantive tax on all or a portion of the

deferred gain until the gain is recognized

upon the earlier of an inclusion event or

December 31, 2026. In these circumstances, the withholding will not serve its intended purpose to ensure that the substantive tax is collected. To address the risk of

noncompliance by certain foreign persons

with respect to their U.S. tax obligations

related to deferred gain under section

1400Z-2(a), the Treasury Department and

the IRS have determined that coordination

is needed between section 1400Z-2 and

sections 1445, 1446(a), and 1446(f).

To ensure that the compliance purposes of sections 1445, 1446(a), and

1446(f) are not undermined when a foreign person elects to defer gain under

Bulletin No. 2021–18

section 1400Z-2(a), these proposed regulations provide that security-required

persons (certain foreign persons and foreign-owned partnerships) investing gain

that is a security-required gain (generally, gain from a transfer subject to withholding under section 1445, 1446(a), or

1446(f)) may not make a deferral election under section 1400Z–2(a) unless an

eligibility certificate is obtained with respect to that gain. See section II.B of this

Explanation of Provisions. At the same

time, the proposed regulations eliminate

or reduce withholding under section 1445,

1446(a), or 1446(f) on security-required

persons that obtain an eligibility certificate and provide security to the IRS before

the transaction giving rise to the gain. As

discussed in Part II.C of this Explanation

of Provisions, this exemption responds to

comments received on the proposed regulations under section 1400Z-2 requesting

withholding relief so that foreign persons

have funds available to invest the entire

amount of eligible gain into a QOF. A security-required person that does not obtain

an eligibility certificate before the transfer,

and thus is withheld upon, must still obtain an eligibility certificate to make a deferral election under section 1400Z-2(a).

The security-required person (or, if applicable, its partner, owner, or beneficiary) may also claim a credit or refund for

the amount withheld on the deferred gain

when filing its return. The IRS intends to

require any claim for credit or refund for

amounts withheld under section 1445,

1446(a), or 1446(f) on deferred gain under section 1400Z-2(a) to include a copy

of the eligibility certificate for the covered

transfer (or a statement providing that the

transfer was not a covered transfer).

B. Requirement for certain persons to

obtain eligibility certificate

1. In General

The proposed regulations provide that

a taxpayer that is a security-required person may not make a deferral election under section 1400Z–2(a) with respect to

part or all of a security-required gain from

a covered transfer unless the taxpayer

obtains an eligibility certificate from the

IRS with respect to such security-required

gain by the date on which the deferral

1133

election is filed with the IRS. Proposed

§ 1.1400Z2(a)-1(a)(3). The eligibility certificate must specify the permitted deferral

amount, and the taxpayer may not make

a deferral election with respect to the security-required gain in an amount that exceeds the permitted deferral amount. Id.

2. Security-Required Persons

A security-required person means a

person that is either (i) a foreign person

other than a partnership or (ii) a specified

partnership. Proposed § 1.1400Z2(a)-2(b)

(1). To minimize burden, the Treasury Department and the IRS have decided not to

require that all partnerships electing to defer gain under section 1400Z-2(a) obtain

an eligibility certificate. Rather, the rules

regarding specified partnerships are intended to impose this requirement only on

partnerships that pose a compliance risk

with respect to the collection of tax on any

deferred gain and that either hold a significant amount of U.S. real property interests

or assets used in a U.S. trade or business

or that generate a significant amount of

gain that the partnership elects to defer.

An abusive avoidance of the rules regarding specified partnerships is subject to the

existing anti-abuse rule in § 1.1400Z2(f)1(c)(1) (providing that if a significant purpose of a transaction is to achieve a Federal income tax result that is inconsistent

with the purposes of section 1400Z-2 and

the section 1400Z-2 regulations, a transaction (or series of transactions) will be recast or recharacterized for Federal income

tax purposes as appropriate to achieve tax

results that are consistent with the purposes of section 1400Z–2 and the section

1400Z–2 regulations).

A specified partnership is a partnership, foreign or domestic, that meets three

tests with respect to a transfer that produces a security-required gain: an ownership test, a closely-held test, and a gain or

asset test. Proposed § 1.1400Z2(a)-2(b)

(3). The ownership test is met if, at the

time of transfer, 20 percent or more of

the capital or profits interests in the partnership are owned (directly or indirectly

through one or more partnerships, trusts,

or estates) by one or more nonresident

aliens or foreign corporations. Proposed

§ 1.1400Z2(a)-2(b)(3)(i). The closely-held test is met if, at any time during a

May 3, 2021

look-back period, a partnership has 10 or

fewer direct partners that own 90 percent

or more of the capital or profits interests in

the partnership, with any related partners

(within the meaning of section 267(b)

or 707(b)(1)) being treated as a single

partner. Proposed § 1.1400Z2(a)-2(b)

(3)(ii). For purposes of the closely-held

test, the look-back period is the period

that begins on the later of the date that

is one year before the date of the transfer or the date on which the partnership

was formed, and that ends on the date of

the transfer. Id. Further, a partner that is a

partnership or trust is considered a direct

partner. Id. The gain or asset test is met

if either: (i) The amount of security-required gain from the transfer exceeds $1

million (the gain test) or (ii) at any time

during a look-back period, the value of

the partnership’s assets that are U.S. real

property interests or assets used in a U.S.

trade or business exceeds 25 percent of

the total value of the partnership’s assets

(the asset test). Proposed § 1.1400Z2(a)2(b)(3)(iii). For purposes of the asset

test, the look-back period is the same as

the look-back period for purposes of the

closely held test. Id. The proposed regulations allow the partnership to determine

the value of an asset on the last day of the

taxable year preceding the year in which

the look-back period begins or, for any

asset acquired after this date (including

upon formation of the partnership), on

the date of acquisition. Id. The proposed

regulations also provide rules for looking

through interests in other partnerships to

value assets that are held indirectly. Id.

Finally, the proposed regulations state

that the value of each asset will be measured according to its gross fair market

value. Id. The Treasury Department and

the IRS request comments on whether a

method of valuing assets other than fair

market value should be used for purposes

of the asset test. The Treasury Department and the IRS also request comments

on whether net value, instead of gross

value, should be used for purposes of the

asset test.

3. Covered Transfer and SecurityRequired Gain

A covered transfer is defined as: (i) A

disposition by, or a distribution to, a security-required person that is subject to

withholding under section 1445; (ii) a

disposition by, or a distribution to, a security-required person that is subject to

withholding under section 1446(f); (iii) a

disposition by a specified partnership of

property, other than an interest in another

partnership or a U.S. real property interest, or a distribution to a specified partnership, if any gain that arises is included in

computing ECTI; or (iv) a disposition by a

partnership that is not a specified partnership of property, or a distribution to such

a partnership, if any gain that arises is included in determining the allocable share

of a security-required person’s ECTI.1 Proposed § 1.1400Z2(a)-2(c)(2)(i). The proposed regulations generally provide that a

transfer subject to section 1445 or 1446(f)

is not a covered transfer if an exception

to withholding applies under those provisions. Proposed § 1.1400Z2(a)-2(c)(2)(ii).

However, in order to impose the eligibility certificate requirements on security-required persons that are domestic specified

partnerships, if the exception to withholding is based on the non-foreign status of

the transferor, the transfer will continue to

be treated as a covered transfer. Id. For the

same reason, a domestic specified partnership is treated as a foreign person in determining whether a transfer is a covered

transfer as defined in (A), (B), and (D) of

proposed § 1.1400Z2(a)-2(c)(2)(i).

Security-required gain is certain

gain that arises from a covered transfer. Proposed § 1.1400Z2(a)-2(c)(1). For

a covered transfer defined in proposed

§ 1.1400Z2(a)-2(c)(2)(i)(C) (described in

(iii) in the first sentence of the preceding

paragraph), the amount of security-required gain is the gain that is included

in computing ECTI under § 1.1446-2,

disregarding § 1.1446-2(b)(4)(i). Id. For

a covered transfer defined in proposed

§ 1.1400Z2(a)-2(c)(2)(i)(D) (described in

(iv) in the first sentence of the preceding

paragraph), the amount of security-required gain is the gain that is included in

computing ECTI under § 1.1446-2 that is

allocable to the security-required person.

Id.

4. Application for an eligibility certificate

and acceptable security

To obtain an eligibility certificate with

respect to any security-required gain,

a security-required person must submit an application to the IRS. Proposed

§ 1.1400Z2(a)-2(d)(2). The IRS is considering requiring electronic submission

of the application; this process would

be described in forms, instructions, publications, or guidance published in the

Internal Revenue Bulletin. The application must generally include the following: (i) Certain information about the

security-required person and the covered transfer; (ii) an agreement for the

deferral of tax and provision of security

(deferral agreement); (iii) an agreement

with a U.S. agent (as defined in proposed

§ 1.1400Z2(a)-2(d)(4)(ii)(D));

and (iv) acceptable security that secures

the amount of security-required gain for

which the eligibility certificate is being

obtained. Proposed § 1.1400Z2(a)-2(d)

(3). The application includes the requirement to provide a U.S. taxpayer identification number. If applicants do not yet

have a U.S. taxpayer identification number, additional time should be allocated

to ensure that a U.S. taxpayer identification number can be obtained; see the

instructions to Forms W-7 and SS-4. The

IRS may prescribe in forms or instructions or in publications or guidance published in the Internal Revenue Bulletin

(see § §601.601(d)(2) and 601.602 of

this chapter) procedures for obtaining a

U.S. taxpayer identification number under these circumstances.

Acceptable security is defined as an

irrevocable standby letter of credit issued by a U.S. bank that meets certain

capital and other requirements specified

While both categories (iii) and (iv) describe dispositions or distributions, the gain from which is used in the calculation of ECTI under § 1.1446-2, category (iii) describes transactions

directly involving a specified partnership, while category (iv) describes transactions involving a partnership that is not a specified partnership that produce gain allocable to a partner that is a

security-required person. The transactions described in category (iii) are limited to those involving property other than partnership interests and U.S. real property interests because the direct

transfer by a specified partnership of a partnership interest is subject to withholding under section 1446(f) (and thus is already described in category (ii)), and the direct transfer of a U.S. real

property interest is subject to withholding under section 1445 (and thus is already described in category (i)).

1

May 3, 2021

1134

Bulletin No. 2021–18

in these proposed regulations. Proposed

§ 1.1400Z2(a)-2(d)(6)(ii). The proposed

regulations provide that the IRS may

identify in published guidance additional financial institutions that may qualify as issuers of letters of credit. Id. The

Treasury Department and the IRS request

comments on financial institutions other

than banks that should qualify as issuers

of letters of credit. The Treasury Department and the IRS also request comments

on whether additional types of security are

needed. Any additional proposed types of

security should preserve administrative

flexibility to require electronic submission

of applications and protect the IRS’s collection ability.

5. Deferral Agreement and Events of

Default

In general, under the deferral agreement, the security-required person agrees

to do the following: timely file a Federal

income tax return and pay any tax liability due on the security-required gain for

which the security-required person seeks

to defer gain under section 1400Z–2(a)

when required; report any security-required gain in accordance with the regulations under section 1400Z-2; provide

security to the IRS with respect to any tax

liability due on security-required gain for

which the security-required person seeks

to defer gain under section 1400Z–2(a);

and appoint a U.S. person to act as the security-required person’s limited agent for

certain purposes specified in the deferral

agreement. Proposed § 1.1400Z2(a)-2(d)

(4)(ii). The deferral agreement must conform to the template provided in guidance

published in the Internal Revenue Bulletin. Proposed § 1.1400Z2(a)-2(d)(4)(i).

An event of default under the deferral

agreement is an inclusion event that triggers recognition of the security-required

gain for which the security-required person seeks to defer gain under section

1400Z–2(a). Proposed § 1.1400Z2(a)2(d)(4)(ii)(E). Defaults, upon which an

event of default may be based, will be

specified in the deferral agreement, and

may include the following: a determination that the security is no longer adequate

to protect the IRS’s interests; a change in

the creditworthiness of the issuer of a letter of credit; and a failure by the securi-

Bulletin No. 2021–18

ty-required person to file returns or attach

an eligibility certificate (when required)

during the period covered by the deferral

agreement. Proposed § 1.1400Z2(a)-2(d)

(4)(ii)(E). In addition, the deferral agreement will specify whether notice of default and an opportunity to cure will be

provided to the security-required person

before an event of default arises. Id.

6. Amount of Eligibility Certificate

The proposed regulations provide that

an eligibility certificate will be issued for

a permitted deferral amount. Proposed

§ 1.1400Z2(a)-2(d)(1). If a security-required person provides security in an

amount equal to the maximum security

amount, the permitted deferral amount is

the total amount of security-required gain.

Proposed § 1.1400Z2(a)-2(d)(7)(i). If a

security-required person provides security

in an amount less than the maximum security amount, the permitted deferral amount

is the total amount of security-required

gain multiplied by the ratio of the amount

of security provided over the maximum

security amount. Id.

The proposed regulations provide specific rules for determining the maximum

security amount, which is generally computed by reference to either a percentage

of the amount realized on the covered

transfer or the amount of tax due on the

security-required gain. See proposed

§ 1.1400Z2(a)-2(d)(7)(ii). The maximum

security amount on a direct disposition

by, or a distribution to, a security-required

person that is subject to withholding under section 1445 is the lesser of: (i) The

amount realized multiplied by the rate

specified under section 1445(a) (or, for

transfers subject to section 1445(e)(1), (e)

(2), or (e)(6), the rate specified in the applicable provision) or (ii) the security-required gain multiplied by the highest rate

of tax applicable to the gain, based on the

type of property, holding period, and the

classification of the security-required person. Proposed § 1.1400Z2(a)-2(d)(7)(ii)

(A). The maximum security amount on a

direct disposition by, or a distribution to, a

security-required person that is subject to

withholding under section 1446(f) is the

lesser of: (i) The amount realized multiplied by the rate specified under section

1446(f)(1) or (ii) the security-required

1135

gain multiplied by the highest rate of tax

applicable to the gain based on the type

of property, holding period, and the classification of the security-required person.

Proposed § 1.1400Z2(a)-2(d)(7)(ii)(B). If

a direct disposition of a partnership interest is subject to withholding under both

sections 1445 and 1446(f), the proposed

regulations provide that the rate specified

in section 1445 is used for purposes of determining the maximum security amount.

Proposed § 1.1400Z2(a)-2(d)(7)(ii)(A)

and (B).

For a direct disposition of property,

other than an interest in another partnership or a U.S. real property interest, by

a specified partnership, or a distribution

to a specified partnership, the maximum

security amount is the security-required

gain multiplied by the highest rate of tax

applicable to the gain, treating the specified partnership as an individual for this

purpose, and taking into account the type

of property and holding period. Proposed

§ 1.1400Z2(a)-2(d)(7)(ii)(C). Therefore,

a specified partnership that has gain arising from the direct sale or exchange of

an asset used in a U.S. trade or business

(other than a U.S. real property interest)

will generally be required to obtain an eligibility certificate for such gain if it wants

to elect to defer all or part of the gain by

investing in a QOF.

For a disposition of property (including

an interest in another partnership or a U.S.

real property interest) by a partnership

that is not a specified partnership, or a distribution to such a partnership, that gives

rise to gain that is included in determining

the allocable share of a security-required

person’s ECTI, the maximum security

amount is the security-required gain multiplied by the highest rate of tax applicable

to the gain, taking into account the type

of property, holding period, and the classification of the security-required person.

Proposed § 1.1400Z2(a)-2(d)(7)(ii)(D).

C. Elimination or reduction of

withholding based on an eligibility

certificate

Comments on the May 2019 proposed

regulations requested relief from withholding under section 1445, 1446(a), or

1446(f) on transactions if gain from those

transactions was deferred under section

May 3, 2021

1400Z-2. One comment requested that a

foreign taxpayer engaging in a sale subject to withholding under section 1445 be

able to provide a certificate or other form

of documentation to avoid withholding

based on the taxpayer’s intention to invest

the resulting gain in a QOF pursuant to a

deferral election under section 1400Z-2(a)

(1). In addition, the comment suggested

that a foreign taxpayer would be required

to certify that it will file a tax return in

the year the QOF interest is sold. Another comment requested an exemption from

withholding when a foreign person enters

into an agreement with the IRS to pay the

tax when the deferred gain is included

under section 1400Z-2(a)(1)(B) and (b),

similar to when a gain recognition agreement is “triggered” under section 367

and the regulations thereunder. Another

comment suggested that the IRS provide

a reduced FIRPTA withholding certificate

for foreign persons who intend to invest

in QOFs.

The comments noted that withholding

may reduce the amount of funds available to the foreign person to invest in the

QOF fund within the 180-day investment

period. Even though the foreign person

may later obtain a refund of the amount

withheld, there may be a temporary lack

of liquidity that could prevent an investor

from investing all of its eligible gain into

a QOF.

The proposed regulations address

these comments by allowing a security-required person to use an eligibility certificate as a basis for reducing or

eliminating withholding under section

1445, 1446(a), or 1446(f) on a covered

transfer. For purposes of section 1445, a

security-required person may apply for

a withholding certificate from the IRS

based on an eligibility certificate. For

purposes of section 1446(f), the proposed regulations add a rule to allow a

transferee to rely on an eligibility certificate to qualify for an exception or adjustment to withholding.

Section 1.1446-3 currently allows a

partnership to consider certain partner

level deductions and losses certified in accordance with § 1.1446-6 in determining

its section 1446 tax. The proposed regulations modify the rules in § §1.1446-3

2

and 1.1446-6 to allow a partnership to

also consider in determining its section

1446 tax the permitted deferral amount

of an eligibility certificate submitted by

a partner. When determining installments

of 1446 tax, to ensure that the reduction

in effectively connected items by the permitted deferral amount is fully taken into

account, the eligibility certificate must

be considered before the effectively connected items are annualized. Proposed

§ §1.1446-3(b)(2)(i)(B)(1) and 1.14466(c)(1)(iv).

Because the withholding requirement

on a transfer or distribution with respect to

an interest in a publicly traded partnership

(PTP) is generally imposed on a broker (or

nominee), and it would be administratively difficult for a broker to timely obtain an

eligibility certificate, the procedures for

using an eligibility certificate to reduce

or eliminate withholding do not apply for

these purposes. A security-required person

that has gain arising from a disposition or

distribution with respect to a PTP interest is, however, still required to obtain an

eligibility certificate to defer security-required gain.

III. Flexibility with Respect to Working

Capital Safe Harbor Plans in the Event of

a Federally Declared Disaster

After the major disaster declarations

issued in response to the ongoing novel

coronavirus 2019 (COVID‑19) pandemic2, commenters expressed a need for additional regulatory guidance regarding the

operation of the 24-month extension for

the working capital safe harbor included in

the section 1400Z-2 regulations for Federally declared disasters. Although the final

regulations provide a qualified opportunity zone business an additional 24 months

to expend its working capital assets, the

qualified opportunity zone business must

do so in a manner substantially consistent

with the original, pre-disaster written designation in which the amount of working

capital assets subject to the safe harbor

are designated and according to the original, pre-disaster written schedule for expending such amounts. In some cases, the

commenters pointed out, the post-disaster

environment facing the qualified opportu-

nity zone business may render the original

plan suboptimal or even infeasible.

In response, this notice of proposed

rulemaking proposes to add three new

sentences at the end of § 1.1400Z2(d)1(d)(3)(v)(D) that provide flexibility for

qualified opportunity zone businesses to

revise or replace the original written designation and written plan, provided that

the remaining working capital assets are

expended within the original regulatorily

required 31-month period, increased by

the 24 additional months provided in response to the Federally declared disaster.

IV. Applicability Dates

A. Proposed regulations related to

covered transfers

The proposed regulations relating to

covered transfers, including the requirement for eligibility certificates, will apply

to any covered transfer that occurs after

the date that these regulations are published as final regulations in the Federal

Register. Taxpayers should not submit

applications for eligibility certificates

before the date that these regulations are

published as final regulations in the Federal Register. Any applications submitted

before such date will not be processed by

the IRS.

B. Proposed regulations related to

Federally declared disasters

The three new sentences proposed to

be added at the end of § 1.1400Z2(d)-1(d)

(3)(v)(D) are proposed to apply to taxable

years beginning after the date these regulations are published as final regulations

in the Federal Register. Additionally, a

taxpayer may rely on the three new sentences proposed to be added at the end of

§ 1.1400Z2(d)-1(d)(3)(v)(D) for taxable

years beginning after December 31, 2019.

Special Analyses

I. Regulatory Planning and Review

This proposed regulation is not subject

to review under section 6(b) of Executive

Order 12866 pursuant to the Memoran-

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

May 3, 2021

1136

Bulletin No. 2021–18

dum of Agreement (April 11, 2018) between the Treasury Department and the

Office of Management and Budget regarding review of tax regulations.

II. Paperwork Reduction Act

A. Collection of information for proposed

§ 1.1400Z2(a)-2

Proposed § 1.1400Z2(a)-2 contains

collections of information that are not on

existing or new IRS forms. The proposed

regulations require that security-required

persons submit to the IRS an application

that includes the following information

and documents to obtain an eligibility certificate with respect to security-required

gain.

1. Identification of security-required

person (proposed § 1.1400Z2(a)-2(d)(3)

(ii));

2. Information about the covered transfer (proposed § 1.1400Z2(a)-2(d)(3)(iii));

3. Agreement for deferral of tax

and provision of security (proposed

§ 1.1400Z2(a)-2(d)(4));

4. U.S. agent agreement (proposed

§ 1.1400Z2(a)-2(d)(5)); and

5. Security and any related required

documents (proposed § 1.1400Z2(a)-2(d)

(6)).

The collections of information contained in this notice of proposed rulemaking have been submitted to the Office of

Management and Budget (OMB) for review in accordance with the Paperwork

Reduction Act. Commenters are strongly

encouraged to submit public comments

electronically. Comments and recommendations for the proposed information

collection may be submitted via www.

reginfo.gov/public/do/PRAMain.

Find

this particular information collection by

selecting “Currently under Review - Open

for Public Comments” then by using the

search function. Comments can also be

emailed to the IRS at omb.unit@irs.gov

(indicate REG-121095-19 on the subject

line). Comments also may be mailed to

OMB, Attn: Desk Officer for the Department of the Treasury, Office of Information and Regulatory Affairs, Washington,

DC 20503, with copies mailed to the IRS,

Attn: IRS Reports Clearance Officer,

SE:W:CAR:MP:T:T:SP, Washington, DC

20224. Comments on the collections of

Bulletin No. 2021–18

information should be received by June

14, 2021. Comments are specifically requested concerning:

Whether the proposed collection of information is necessary for the proper performance of the IRS, including whether

the information will have practical utility;

The accuracy of the estimated burden

associated with the proposed collection

of information (including underlying assumptions and methodology);

How the quality, utility, and clarity of

the information to be collected may be enhanced;

How the burden of complying with

the proposed collections of information

may be minimized, including through the

application of automated collection techniques or other forms of information technology; and

Estimates of capital or start-up costs

and costs of operation, maintenance, and

purchase of service to provide information.

The likely respondents required to

comply with these proposed regulations

are business, other for-profit taxpayers,

or individuals. The proposed frequency of

recordkeeping and reporting requirement

will be as needed.

Estimated total annual reporting

burden: 35,000 hours.

Estimated average annual burden

hours per respondent: Approximately

10 hours.

Estimated number of respondents:

3,500.

Estimated annual frequency of

responses: On occasion (as the

collections of information do not

occur on an annual basis).

B. Collection of information for proposed

§ 1.1400Z2(d)-1(d)(3)(v)(D)

Proposed

§ 1.400Z2(d)-1(d)(3)(v)

(D) imposes an additional information

collection requirement in the form of

recordkeeping. The creation of, or modification of, existing written schedules as

required under proposed § 1.1400Z2(d)1(d)(3)(v)(D) will be performed by qualified opportunity zone businesses that

want to receive an additional 24 months

to expend their working capital assets,

under the extension of time permitted

by proposed § 1.1400Z2(d)-1(d)(3)(v)

1137

(D). This recordkeeping requirement will

not be conducted using a new or existing

IRS form. Such businesses must maintain, as part of their records, a copy of

the written working plan including any

modifications to the plan and provide

these records to the IRS upon its request.

This modification encourages investment

in QOFs by providing greater specificity

to how an entity may consistently satisfy

the statutory requirements to be a qualified opportunity zone business in light of

the current economic climate. However,

the increase in burden on these entities

is minimal as these entities were required

to maintain such records prior to the proposed modification if they wanted to utilize a working capital safe harbor under

§ 1.1400Z2(d)-1(d)(3)(v).

An agency may not conduct or sponsor,

and a person is not required to respond to,

a collection of information unless it displays a valid control number assigned by

the Office of Management and Budget.

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

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

revenue law. Generally, tax returns and tax

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

III. Regulatory Flexibility Act

It is hereby certified that the proposed

regulations under § §1.1400Z2(a)-1,

1.1400Z2(a)-2, 1.1400Z2(b)-1, 1.14453, 1.1446-3, 1.1446-6, 1.1446-7 and

1.1446(f)-2, if adopted, will not have a

significant economic impact on a substantial number of domestic small entities

within the meaning of section 601(6) of

the Regulatory Flexibility Act (5 U.S.C.

chapter 6). Although these proposed regulations would primarily affect foreign

persons, they may have an impact on a

small number of domestic partnerships.

The domestic partnerships affected by

these regulations are closely-held partnerships with significant foreign ownership

and that either have substantial assets that

are either U.S. real property interests or

assets used in a U.S. trade or business or a

large amount of gain from the sale of such

assets. This is a narrow set of taxpayers

and is likely a small subset of persons that

invest in a QOF.

May 3, 2021

It is hereby certified that the proposed

regulation under § 1.1400Z2(d)-1(d)(3)

(v)(D), if adopted, will not have a significant economic impact on a substantial

number of small entities within the meaning of section 601(6) of the Regulatory

Flexibility Act. The Treasury Department

and the IRS anticipate that this proposed

regulation will provide added clarity for

qualified opportunity zone businesses to

create or modify existing written plans to

expend working capital in the event of a

Federally declared disaster.

Taxpayers affected by these proposed

regulations include QOFs, investors in

QOFs and qualified opportunity zone

businesses in which a QOF holds an ownership interest. The proposed regulations

will not directly affect the taxable incomes

and tax liabilities of qualified opportunity zone businesses; they will affect only

the taxable income and tax liabilities of

QOFs (and owners of QOFs) that invest

in such businesses. Although there is a

lack of available data regarding the extent

to which small entities invest in QOFs,

will certify as QOFs, or receive equity

investments from QOFs, the Treasury

Department and the IRS project that most

of the investment flowing into QOFs will

come from large corporations and wealthy

individuals though some of these funds

would likely flow through an intermediary investment partnership. It is expected

that some QOFs and qualified opportunity zone businesses would be classified

as small entities; however, the number of

small entities significantly affected is not

likely to be substantial. Accordingly, the

Secretary certifies that these rules will not

have a significant economic impact on a

substantial number of small entities.

Notwithstanding this certification, the

Treasury Department and the IRS invite

comments on any impact these regulations

would have on small entities.

Pursuant to section 7805(f), these regulations have been submitted to the Chief

Counsel for the Office of Advocacy of the

Small Business Administration for comment on their impact on small business.

IV. Unfunded Mandates Reform Act

Section 202 of the Unfunded Mandates

Reform Act of 1995 requires that agencies

assess anticipated costs and benefits and

May 3, 2021

take certain other actions before issuing a

final rule that includes any Federal mandate that may result in expenditures in any

one year by a state, local, or tribal government, in the aggregate, or by the private

sector, of $100 million in 1995 dollars,

updated annually for inflation. This rule

does not include any Federal mandate that

may result in expenditures by state, local,

or tribal governments, or by the private

sector in excess of that threshold.

V. Executive Order 13132: Federalism

Executive Order 13132 (entitled

“Federalism”) prohibits an agency from

publishing any rule that has federalism

implications if the rule either imposes

substantial, direct compliance costs on

state and local governments, and is not

required by statute, or preempts state law,

unless the agency meets the consultation

and funding requirements of section 6 of

the Executive Order. This proposed rule

does not have federalism implications,

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

and does not preempt state law within the

meaning of the Executive Order.

Comments and Requests for Public

Hearing

Before these proposed amendments

to the regulations are adopted as final

regulations, consideration will be given

to comments that are submitted timely

to the IRS as prescribed in the preamble

under the “ADDRESSES” section. The

Treasury Department and the IRS request

comments on all aspects of the proposed

regulations. Any electronic comments

submitted, and to the extent practicable

any paper comments submitted, will be

made available at www.regulations.gov or

upon request.

A public hearing will be scheduled if

requested in writing by any person who

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

also encouraged to be made electronically.

If a public hearing is scheduled, notice of

the date and time for the public hearing

will be published in the Federal Register.

Announcement 2020-4, 2020-17 IRB 1,

provides that until further notice, public

hearings conducted by the IRS will be

1138

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

disabilities.

Drafting Information

The principal authors of these proposed

regulations are Milton Cahn, L. Ulysses

Chatman, Ronald M. Gootzeit, and Subin

Seth of the Office of the Associate Chief

Counsel (International) and Erika Reigle

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

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

Statement of Availability of IRS

Documents

IRS Revenue Procedures, Revenue

Rulings, Notices, and other guidance cited in this document are published in the

Internal Revenue Bulletin or Cumulative

Bulletin and are available from the Superintendent of Documents, U.S. Government Publishing Office, Washington, DC

20402, or by visiting the IRS website at

http://www.irs.gov.

List of Subjects in 26 CFR Part 1

Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the

Regulations

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

PART 1—INCOME TAXES

Paragraph 1. The authority citation

for part 1 is amended by adding an entry

for § 1.1400Z2(a)-2 and revising the entries for § §1.1445-3, 1.1446-3, 1.1446-6,

1.1446-7 and 1.1446(f)-2 to read in part

as follows:

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

*****

Section 1.1400Z2(a)-2 also issued under 26 U.S.C. 1400Z-2(e)(4).

*****

Section 1.1445-3 also issued under

26 U.S.C. 1400Z-2(e)(4) and 26 U.S.C.

1445(e)(7).

Bulletin No. 2021–18

*****

Section 1.1446-3 also issued under

26 U.S.C. 1400Z-2(e)(4) and 26 U.S.C.

1446(g).

*****

Section 1.1446-6 also issued under

26 U.S.C. 1400Z-2(e)(4) and 26 U.S.C.

1446(g).

Section 1.1446-7 also issued under

26 U.S.C. 1400Z-2(e)(4) and 26 U.S.C.

1446(g).

*****

Section 1.1446(f)-2 also issued under 26 U.S.C. 1400Z-2(e)(4), 26 U.S.C.

1446(f)(6), and 26 U.S.C. 1446(g).

*****

Par. 2. Section 1.1400Z2-0 is amended

by:

1. Revising the introductory text.

2. Adding an entry for § 1.1400Z2(a)1(a)(3).

3. Revising the entry for § 1.1400Z2(a)1(g)(2).

4. Adding an entry for § 1.1400Z2(a)2.

5. Adding an entry for § 1.1400Z2(b)1(j)(3).

6. Revising the entry for § 1.1400Z2(d)1(e)(2).

The revisions and additions read as follows:

§ 1.1400Z2-0 Table of Contents.

This section lists the table of contents for § §1.1400Z2(a)-1 through

1.1400Z2(f)-2.

§ 1.1400Z2(a)-1 Deferring tax on capital

gains by investing in opportunity zones.

(a) * * *

(3) Eligibility certificate needed to establish the permitted deferral amount for

certain foreign persons and foreign-owned

partnerships.

*****

(g) * * *

(2) Exceptions.

§ 1.1400Z2(a)-2 Certain foreign persons

and foreign-owned partnerships required

to provide security.

(a) In general.

(b) Security-required person.

(1) In general.

Bulletin No. 2021–18

(2) Foreign person.

(3) Specified partnership.

(c) Security-required gain.

(1) Definition.

(2) Covered transfer.

(d) Eligibility certificate.

(1) In general.

(2) Application materials.

(3) Application.

(4) Deferral agreement.

(5) U.S. agent agreement.

(6) Security.

(7) Permitted deferral amount.

(e) Example.

(f) Applicability date.

§ 1.1400Z2(b)-1 Inclusion of gains

that have been deferred under section

1400Z-2(a).

*****

(j) * * *

(3) Specific rules.

§ 1.1400Z2(d)-1 Qualified opportunity

funds and qualified opportunity zone

businesses.

*****

(e) * * *

(2) Exceptions.

*****

Par. 3. Section 1.1400Z2(a)-1 is

amended by:

1. Adding paragraph (a)(3).

2. Revising paragraph (g)(1).

3. Redesignating paragraphs (g)(2)

introductory text and (g)(2)(i) and (ii) as

paragraphs (g)(2)(i) and (g)(2)(i)(A) and

(B), respectively.

4. Adding a subject heading for newly

redesignated paragraph (g)(2).

5. Adding new paragraph (g)(2)(ii).

The revisions and additions read as follows:

§ 1.1400Z2(a)-1 Deferring tax on capital

gains by investing in opportunity zones.

(a) * * *

(3) Eligibility certificate needed to establish the permitted deferral amount for

certain foreign persons and foreign-owned

partnerships. Notwithstanding any other

provision of this section, if a taxpayer is

a security-required person (as defined in

§ 1.1400Z2(a)–2(b)(1)) with respect to a

1139

gain and that gain is a security-required

gain (as defined in § 1.1400Z2(a)–2(c)

(1)), then the taxpayer may not make a deferral election under section 1400Z–2(a)

with respect to part or all of that gain unless the requirements in paragraph (a)(3)

(i), (ii), and (iii) of this section are satisfied.

(i) Not later than the date on which

the deferral election is filed with the IRS

under paragraph (a)(2) of this section, the

person obtains an eligibility certificate

with respect to that gain (as defined in

§ 1.1400Z2(a)–2(d)(1));

(ii) The eligibility certificate provides

a permitted deferral amount (as defined in

§ 1.1400Z2(a)-2(d)(7)); and

(iii) The amount of gain sought to be

deferred does not exceed the permitted deferral amount.

(iv) See § 1.1400Z2(a)-2 for additional

requirements for certain foreign persons

and foreign-owned partnerships to make a

valid deferral election.

(v) Examples. The examples in this

paragraph (a)(3)(v) illustrate the rule in

paragraph (a)(3) of this section.

(A) Example 1. Eligibility certificate for a permitted deferral amount that is less than the total

amount of security-required gain. Taxpayer realizes

a $100x gain, which is an eligible gain. In addition,

Taxpayer is a security-required person with respect

to that gain, and the gain is a security-required gain.

Taxpayer invests $100x in a QOF, and, without taking into account the limitation in paragraph (a)(3)

(i) of this section, Taxpayer would be able to make

a valid deferral election with respect to the entire

$100x gain. Taxpayer applies for an eligibility certificate with respect to that gain and receives the eligibility certificate before timely filing Taxpayer’s Federal income tax return for the taxable year in which

the gain would be recognized. The eligibility certificate, however, provides a permitted deferral amount

of $75x. Under paragraph (a)(3) of this section,

therefore, a valid deferral election is limited to that

deferral amount. Consequently, $75x of Taxpayer’s

investment in the QOF is a qualifying investment,

which is described in section 1400Z‑2(e)(1)(A)(i),

and no election under section 1400Z-2(a) can apply

to the remaining $25x ($100x - $75x) investment.

As a result, that remaining investment in the QOF is

a non-qualifying investment, which is described in

section 1400Z-2(e)(1)(A)(ii).

(B) Example 2. Deferring gain from inclusion. In

2022, Taxpayer realizes a gain of $x, Taxpayer was

a security-required person with respect to that gain,

and the gain was a security-required gain. Complying with all the requirements in this section (including paragraph (a)(3) of this section), Taxpayer made

a valid election to defer a gain of $x, after having

invested $x in a QOF. In 2025, after Taxpayer’s interest in the QOF had appreciated by $y, Taxpayer

sold that interest for $x + $y. The sale was an inclu-

May 3, 2021

sion event, requiring Taxpayer to include in income

the deferred gain of $x. Under paragraph (c)(1) of

this section, the $x inclusion is a security-required

gain because the deferred gain was a security-required gain. If Taxpayer wants to elect to defer the

$x of included gain and Taxpayer is a security-required person with respect to the included gain, the

limitation in paragraph (a)(3) of this section applies.

Whether the $y gain from the sale is a security-required gain is determined by whether, independent

of the treatment of the inclusion, the $y gain on the

sale is within the definition of security-required gain

in § 1.1400Z2(a)–2(c).

*****

(g) * * *

(1) In general. Except as provided in

paragraph (g)(2) of this section, the provisions of this section are applicable for

taxable years beginning after March 13,

2020.

(2) Exceptions. * * *

(ii) Eligibility certificate requirement.

Paragraph (a)(3) of this section applies

to any security-required gain (as defined

in § 1.1400Z2(a)-2(c)(1)) from a covered

transfer (as defined in § 1.1400Z2(a)-2(c)

(2)) that occurs after [DATE OF PUBLICATION OF FINAL RULE].

Par. 4. Section 1.1400Z2(a)-2 is added

to read as follows:

§ 1.1400Z2(a)-2 Certain foreign persons

and foreign-owned partnerships required

to provide security.

(a) In general. This section provides

definitions and procedures for certain

foreign persons and foreign-owned partnerships to obtain an eligibility certificates in order to meet the requirement in

§ 1.1400Z2(a)-1(a)(3) to make a deferral election with respect to certain gains.

Paragraph (b) of this section describes the

persons required to obtain an eligibility

certificate. Paragraph (c) of this section

describes the gains for which an eligibility certificate must be obtained. Paragraph

(d) of this section provides the procedures

for obtaining an eligibility certificate and

defines the type and amount of security

required.

(b) Security-required person—(1) In

general. A security-required person is,

with respect to a gain, a person that would

be required to report the recognition of the

gain under Federal income tax principles

and that is either—

(i) A foreign person that is not a partnership, or

May 3, 2021

(ii) A specified partnership (as defined

in paragraph (b)(3) of this section).

(2) Foreign person. The term foreign

person means a person that is not a United

States person under section 7701(a)(30).

(3) Specified partnership. The term

specified partnership means, with respect

to a transfer that gives rise to a security-required gain, a partnership that satisfies

the requirements of paragraphs (b)(3)(i)

through (iii) of this section. For purposes of paragraphs (b)(3)(ii) and (iii) of this

section, the look-back period is the period that begins on the later of the date that

is one year before the date of the transfer

or the date on which the partnership was

formed, and that ends on the date of such

transfer. A domestic specified partnership

means a specified partnership that is a domestic partnership.

(i) Ownership test. A partnership satisfies the requirements of this paragraph (b)

(3)(i) if, at the time of transfer, 20 percent

or more of the capital or profits interests in

the partnership are owned (directly or indirectly through one or more partnerships,

trusts, or estates) by one or more nonresident aliens or foreign corporations.

(ii) Closely-held test. A partnership satisfies the requirements of this paragraph

(b)(3)(ii) if, at any time during the lookback period, it has ten or fewer direct partners that own 90 percent or more of the

capital or profits interests in the partnership. For this purpose, any partners that

are related (within the meaning of section

267(b) or 707(b)(1)) are treated as one

partner.

(iii) Gain or asset test. A partnership

satisfies the requirements of this paragraph

(b)(3)(iii) if either the security-required

gain is $1 million or more (the gain test),

or the aggregate value of the partnership’s

assets that are United States real property interests (as defined in section 897(c))

or assets used in the conduct of a trade or

business within the United States is, at any

time during the look-back period, equal to

or greater than 25 percent of the value of

all of the assets of the partnership (the asset test). In making the calculation under

the asset test described in this paragraph

(b)(3)(iii)—

(A) The value of each asset is determined on the last day of the taxable year

before the year in which the look-back

period begins or, for any asset acquired

1140

after this date, on the date of acquisition

(including upon formation of the partnership);

(B) The value of each asset is measured

according to its gross fair market value;

and

(C) The partnership must include the

value of the proportionate share of any

assets held by a partnership in which the

first-mentioned partnership is a direct or

indirect partner, but the first-mentioned

partnership must not include the value of

a direct or indirect interest in another partnership.

(c) Security-required gain—(1) Definition. The term security-required gain

means—

(i) The gain from a covered transfer described in paragraphs (c)(2)(i)(A) or (B)

of this section;

(ii) The gain from a covered transfer

described in paragraph (c)(2)(i)(C) of this

section that is included in computing effectively connected taxable income, as

determined under § 1.1446-2 (ECTI), disregarding § 1.1446-2(b)(4)(i); or

(iii) The gain from a covered transfer

described in paragraph (c)(2)(i)(D) of

this section that is included in computing

ECTI allocated to a security-required person.

(2) Covered transfer—(i) In general.

The term covered transfer means—

(A) A disposition by, or a distribution

to, a security-required person that is subject to withholding under section 1445

(treating a security-required person that is

a domestic specified partnership as a foreign person for this purpose);

(B) A disposition by, or a distribution

to, a security-required person that is subject to withholding under section 1446(f)

(treating a security-required person that is

a domestic specified partnership as a foreign person for this purpose);

(C) A disposition by a specified partnership of property, other than an interest

in another partnership or a U.S. real property interest, or a distribution to a specified partnership, if any gain that arises is

includible in computing ECTI; or

(D) A disposition by a partnership of

property, or a distribution to such a partnership, if any gain that arises is includible (by any partnership) in determining

the allocable share of a security-required

person’s ECTI (treating a security-re-

Bulletin No. 2021–18

quired person that is a domestic specified

partnership as a foreign person for this

purpose).

(ii) Exceptions to withholding. A disposition or distribution described in paragraph (c)(2)(i)(A) or (B) of this section

is not a covered transfer if an exception

under § 1.1445-2, 1.1446(f)-2(b), or

1.1446(f)-4(b) applies (other than an exception pertaining to non-foreign status

in § 1.1445-2(b), § 1.1446(f)-2(b)(2),

or § 1.1446(f)-4(b)(2)). In determining

whether an exception applies for purposes of this paragraph (c)(2)(ii), any requirement to provide a certification to the

transferee in order to claim the applicable

exception is disregarded.

(d) Eligibility certificate—(1) In general. This paragraph (d) defines an eligibility certificate with respect to a gain and describes the procedures for obtaining such

a certificate. The term eligibility certificate means, with respect to a security-required gain, a document issued by the IRS

pursuant to this paragraph (d) that provides the permitted deferral amount. The

eligibility certificate will also include the

maximum security amount, the amount

of security provided, and any other information as may be prescribed in forms or

instructions or in publications or guidance

published in the Internal Revenue Bulletin

(see § §601.601(d)(2) and 601.602 of this

chapter). Generally, the IRS will make a

determination with respect to a complete

application for an eligibility certificate not

later than the 90th day after the date that

all information necessary for the IRS to

make a determination is received. At its

discretion, the IRS may extend this period

in unusual circumstances after notifying

the security-required person no later than

the 45th day after the date that all information necessary for the IRS to make a determination is received. The IRS will send

a notification to the security-required person of its determination and, if the application is approved, provide an eligibility

certificate to the security-required person.

For the use of an eligibility certificate to

reduce or eliminate certain withholding

taxes, see § §1.1445-3(e)(5), 1.1446-6(c)

(1)(iv), and 1.1446(f)-2(b)(8) and (c)(5).

(2) Application materials. To obtain an

eligibility certificate with respect to security-required gain, a security-required person must submit to the IRS the application

Bulletin No. 2021–18

described in paragraph (d)(3) of this section, the deferral agreement described in

paragraph (d)(4) of this section, the U.S.

agent agreement described in paragraph

(d)(5) of this section, and the security (or

evidence of security) of the type and in the

amount described in paragraphs (d)(6) and

(7) of this section.

(3) Application—(i) In general. An

application for an eligibility certificate

must be submitted in the form and in

the manner prescribed in forms or instructions or in publications or guidance

published in the Internal Revenue Bulletin (see § §601.601(d)(2) and 601.602

of this chapter). An application for an

eligibility certificate must include the information described in paragraphs (d)(3)

(ii) and (iii) of this section and any other information prescribed in forms or instructions or in publications or guidance

published in the Internal Revenue Bulletin

(see § §601.601(d)(2) and 601.602 of this

chapter). The security-required person

must sign the application and represent

under penalties of perjury that all information provided on or with the application is

true, correct, and complete to the best of

that person’s knowledge and belief.

(ii) Identification of security-required

person and U.S. agent. The application for

an eligibility certificate must include the

name, address, and U.S. taxpayer identification number of the security-required

person, and the name, address, and U.S.

taxpayer identification number of the security-required person’s U.S. agent (as

defined in paragraph (d)(4)(ii)(D) of this

section).

(iii) Information about the covered

transfer—(A) Required information. The

application must identify the type of covered transfer. For a covered transfer described in paragraph (c)(2)(i)(A), (B), or

(C) of this section that is not a distribution,

the application must include a description

of the property transferred in the covered

transfer, the amount of security-required

gain, the amount realized, the adjusted basis in the property, and the maximum security amount. For a covered transfer described in paragraph (c)(2)(i)(A), (B), or

(C) of this section that is a distribution, the

application must include the amount of the

distribution, a description of the property

distributed (including cash), the amount of

security-required gain, and the maximum

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security amount. For a covered transfer

described in paragraph (c)(2)(i)(D) of this

section, the application must include the

amount of security-required gain and the

maximum security amount. In each case,

the application for the eligibility certificate

must also identify the amount of security

that has been provided and the amount of

security-required gain for which the eligibility certificate is being obtained. If an

amount described in this paragraph is not

known when the application is submitted,

a security-required person may include a

reasonable estimate of the amount if the

estimate is determined no earlier than 120

days before the covered transfer and the

security-required person also includes in

the application documentation of the basis

for the estimate (for example, a purchase

contract).

(B) Definition of amount realized. The

term amount realized means for a covered transfer described in paragraph (c)

(2)(i)(A) of this section, the amount determined under § 1.1445-1(g)(5); for a

covered transfer described in paragraph

(c)(2)(i)(B) of this section, the amount determined under § 1.1446(f)-2(c)(2)(i) (or

the amount determined using the alternative procedures under § 1.1446(f)-2(c)(2)

(ii), disregarding any requirement to provide a certification) or § 1.1446(f)-4(c)(2)

(i); and for a covered transfer described in

paragraph (c)(2)(i)(C) of this section, the

amount determined under section 1001(b).

(4) Deferral agreement—(i) In general. A deferral agreement is an agreement

entered into between a security-required

person and the IRS for the deferral of tax

and provision of security. The term of the

deferral agreement must not end sooner

than 36 months after the due date (with

extensions) for the filing of the security-required person’s Federal income tax

return for the taxable year that includes

the date specified in section 1400Z-2(b)

(1). The deferral agreement must conform

to any template provided in forms or instructions or in publications or guidance

published in the Internal Revenue Bulletin

(see § §601.601(d)(2) and 601.602 of this

chapter).

(ii) Minimum terms and conditions.

The minimum terms and conditions of a

deferral agreement are provided in paragraphs (d)(4)(ii)(A) through (D) of this

section. The deferral agreement must also

May 3, 2021

include any additional terms and conditions provided in a template provided in

forms or instructions or in publications or

guidance published in the Internal Revenue Bulletin (see § §601.601(d)(2) and

601.602 of this chapter).

(A) The security-required person will

timely file a Federal income tax return

and pay any tax liability due on security-required gain deferred under section

1400Z-2(a) and the regulations thereunder

for each taxable year in which the security-required person is required to include

the gain or a portion thereof in income under § 1.1400Z2(b)-1.

(B) The security-required person will

report any security-required gain invested in a QOF held at any point during

the taxable year in accordance with

§ 1.1400Z2(a)-1(d)(2).

(C) The security-required person provides security to the IRS in the amount

required for the security-required gain for

which the security-required person seeks

to defer gain under section 1400Z–2(a).

The security may be replaced during the

term of the deferral agreement, to the

extent provided in forms or instructions

or in publications or guidance published

in the Internal Revenue Bulletin (see

§ §601.601(d)(2) and 601.602 of this

chapter). Upon a failure to pay any tax

due on security-required gain for which

the security-required person seeks to defer

gain under section 1400Z–2(a) when the

tax is due or upon an event of default (as

described in paragraph (d)(4)(iii) of this

section) under the deferral agreement, the

IRS may collect the entire amount of the

liability by recourse to the security and

may exercise any other rights and remedies of a secured party under applicable

law.

(D) The security-required person appoints a U.S. person to act as the security-required person’s limited agent for purposes of accepting communication related

to the deferral agreement from the IRS,

accepting service of process for the timely

enforcement of the terms of the deferral

agreement, and any other purposes specified in the deferral agreement (U.S. agent).

See paragraph (d)(5) of this section for the

agreement that the security-required person must enter into with the U.S. agent.

(iii) Events of default. The deferral

agreement will specify what is considered

May 3, 2021

a default, the circumstances that give rise

to an event of default, and whether a notice of default and an opportunity to cure

will be provided to the security-required

person before an event of default arises.

Defaults include, but are not limited to, a

failure by an issuer of a letter of credit to

continue to meet the requirements of paragraph (d)(6)(ii) of this section throughout

the term of the deferral agreement; a determination by the IRS that the security

does not otherwise adequately secure the

interests of the IRS; a determination by the

IRS that the U.S. agent agreement is no

longer in effect; a resignation of the U.S.

agent; a failure by the security-required

person to file any required Federal income

tax returns and information returns or pay

any tax due during the term of the deferral agreement; and a failure by the security-required person to attach a copy of the

eligibility certificate to any tax returns,

information returns, forms, or other filings

with the IRS as required in the deferral

agreement. The deferral agreement will

specify which defaults will require notification from the IRS and an opportunity to

cure before a default becomes an event of

default. For example, the deferral agreement will provide that a security-required

person that fails to report any security-required gain invested in a QOF held at any

point during the taxable year in accordance

with § 1.1400Z2(a)-1(d)(2) for any given

taxable year will be permitted to cure the

default by making the report described in

the first sentence of § 1.1400Z2(a)-1(d)

(2) or establishing to the satisfaction of

the Commissioner that an inclusion event

described in § 1.1400Z2(b)-1(c) did not

occur during that taxable year. The deferral agreement will specify the date of an

event of default. See § 1.1400Z2(b)-1(c)

(1)(v) for the consequences of an event of

default under a deferral agreement.

(5) U.S. agent agreement. The security-required person must enter into a

binding agreement with a U.S. agent (as

defined in paragraph (d)(4)(ii)(D) of this

section) authorizing the U.S. agent to act

as an agent (U.S. agent agreement). The

U.S. agent agreement must include the

terms and conditions provided in forms or

instructions or in publications or guidance

published in the Internal Revenue Bulletin

(see § §601.601(d)(2) and 601.602 of this

chapter). The U.S. agent agreement must

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be executed by the security-required person and the U.S. agent and must remain in

effect for as long as the deferral agreement

remains in effect.

(6) Security—(i) In general. The security-required person must provide to the

IRS security described in paragraph (d)(6)

(ii) of this section. The proposed security

(and any required documents described in

forms or instructions or in publications or

guidance published in the Internal Revenue Bulletin (see § §601.601(d)(2) and

601.602 of this chapter)) must generally

be submitted to the IRS with the security-required person’s application for an

eligibility certificate. The maturity date

or expiration of the security must not be

earlier than 36 months after the due date

(with extensions) for the filing of the security-required person’s Federal income tax

return for the taxable year that includes

the date specified in section 1400Z-2(b)

(1). The security cannot be accelerated, cancelled, or otherwise terminated

before maturity, other than at the direction of, or with the consent of, the IRS.

Additional terms and conditions for the

security may be specified in forms or instructions or in publications or guidance

published in the Internal Revenue Bulletin

(see § §601.601(d)(2) and 601.602 of this

chapter). See paragraph (d)(7) of this section for determining the required amount

of the security.

(ii) Letter of credit. The IRS may accept as security an irrevocable standby letter of credit that is issued by a U.S. bank

that is categorized as well capitalized in

accordance with applicable Federal banking regulations and regularly issues letters

of credit in the ordinary course of business

to customers other than security-required

persons under this paragraph (d)(6), or

any other financial institution acceptable

to the IRS, as provided in forms or instructions or in publications or guidance

published in the Internal Revenue Bulletin

(see § §601.601(d)(2) and 601.602 of this

chapter).

(7) Permitted deferral amount—(i) In

general. The permitted deferral amount is

the amount for which an eligibility certificate is issued to a security-required person

with respect to a security-required gain. If

a security-required person provides security in an amount equal to the maximum

security amount, the permitted deferral

Bulletin No. 2021–18

amount is the total amount of security-required gain. If a security-required person

provides security in an amount less than

the maximum security amount, the permitted deferral amount is the total amount

of security-required gain multiplied by the

ratio of the amount of security provided

over the maximum security amount.

(ii) Maximum security amount. The

term maximum security amount means—

(A) For a covered transfer described in

paragraph (c)(2)(i)(A) of this section, the

lesser of the amount realized (as defined

in paragraph (d)(3)(iii)(B) of this section)

multiplied by the rate specified in section

1445(a) (or, for a covered transfer subject

to section 1445(e)(1), (e)(2), or (e)(6), the

security-required gain multiplied by the

rate specified under the applicable provision) or the security-required gain multiplied by the highest rate of tax applicable

to the gain, taking into account the type

of property, holding period, and classification of the security-required person

(treating a security-required person that is

a partnership or trust as an individual for

this purpose);

(B) For a covered transfer described

solely in paragraph (c)(2)(i)(B) of this

section, the lesser of the amount realized

(as defined in paragraph (d)(3)(iii)(B) of

this section) multiplied by the rate specified in section 1446(f)(1), or the security-required gain multiplied by the highest

rate of tax applicable to the gain, taking

into account the type of property, holding

period, and classification of the security-required person (treating a security-required person that is a partnership or trust

as an individual for this purpose);

(C) For a covered transfer described in

paragraph (c)(2)(i)(C) of this section, the

security-required gain multiplied by the

highest rate of tax applicable to the gain,

taking into account the type of property

and the specified partnership’s holding period, and treating the specified partnership

as an individual for this purpose; or

(D) For a covered transfer described in

paragraph (c)(2)(i)(D) of this section, the

security-required gain multiplied by the

highest rate of tax applicable to the gain,

taking into account the type of property,

the holding period and classification of the

security-required person (treating a security-required person that is a partnership

or trust as an individual for this purpose).

Bulletin No. 2021–18

(iii) Example. SRP, an individual who is a security-required person, disposes of U.S. real property

that SRP has held for more than one year and that

has a basis of $80x in a covered transfer subject

to withholding under section 1445(a). The amount

realized is $200x, and the amount of the security-required gain is $120x of long-term capital gain

($200x amount realized less $80x basis). Because

the covered transfer is described in paragraph (c)(2)

(i)(A) of this section, the maximum security amount

is $24x (the lesser of $30x (the amount realized of

$200x multiplied by the rate specified in section

1445(a), (in 2021, 15%)) and $24x (the security-required gain of $120x multiplied by the highest rate of

tax applicable to the gain taking into account the type

of property, holding period and the classification of

the security-required person (in 2021, 20%))). SRP

applies for and receives an eligibility certificate in

accordance with paragraph (d)(1). SRP provides security in the amount of $15x. Because SRP has provided security in an amount less than the maximum

security amount, the eligibility certificate will be

issued for less than the total amount of security-required gain. The permitted deferral amount shown

on the eligibility certificate is the total amount of security-required gain ($120x) multiplied by the ratio

of the amount of security provided by SRP ($15x)

over the maximum security amount ($24x). Therefore, SRP will obtain an eligibility certificate for a

permitted deferral amount of $75x ($120x multiplied

by 62.5%).

(e) Example. The example in this paragraph (e)

illustrates the rules in this section and § 1.1400Z2(a)1(a)(3).

(1) Facts. Partnership P is an eligible taxpayer

within the meaning of § 1.1400Z2(a)-1(b)(13) of

this section. The relevant events take place during

Years 1 through 3, all of which end earlier than 2027.

At all times during those years, P was owned by 10

equal partners.

(i) Three eligible gains. During Year 2, P recognized three gains—G1, G2, and G3—for, respectively,

$750,000 on September 1, $2 million on October 1,

and $2 million on December 20. All three gains were

eligible gains within the meaning of § 1.1400Z2(a)1(b)(11) and the transactions that gave rise to the

gains were subject to withholding under section

1445 or 1446.

(ii) Ownership test. On September 1, Year 2, P

satisfied the ownership test in paragraph (b)(3)(i) of

this section because on that date partners O1 through

O7 were United States persons, and partners O8

through O10 were foreign individuals. On October 1,

Year 2, P did not satisfy the ownership test in paragraph (b)(3)(i) of this section because as of that date

partners O9 and O10 had been replaced by O11 and O12,

who were both United States persons. On December

20, Year 2, P satisfied the ownership test in paragraph

(b)(3)(i) of this section because as of that date partners O11 and O12 had been replaced by O13 and O14,

which were both foreign corporations.

(iii) Closely-held test. At all times during Years

1 through 2, P satisfied the closely-held test in paragraph (b)(3)(ii) of this section because P was owned

by 10 partners.

(iv) Asset test. At all times during Years 1 through

3, P did not satisfy the asset test in paragraph (b)(3)

(iii) of this section because P had total assets in ex-

1143

cess of $100 million, of which less than $25 million

was United States real property interests or assets

used in the conduct of a trade or business within the

United States.

(v) Investment in a QOF and election to defer.

On January 15 of Year 3, P invested $4.75 million

in a QOF, and on P’s timely filed Federal income tax

return for Year 2, P indicated that it was electing to

defer all three gains under § 1.1400Z2(a)-1(a). These

three elections are proper unless they are barred by

§ 1.1400Z2(a)-1(a)(3).

(2) Analysis—(i) G1. P satisfies the ownership

test as of the date of the transfer. P also satisfies the

closely-held test during the look-back period for G1,

but does not satisfy the asset test during the lookback period for G1. P does not satisfy the gain test

in paragraph (b)(3)(iii) of this section because the

amount of the G1 gain is less than $1 million. As a

result, P is not a specified partnership with respect to

G1. Accordingly, P is not a security-required person

with respect to G1, and, thus, P does not need an eligibility certificate with respect to G1 in order to make

a proper deferral election with respect to G1.

(ii) G2. Unlike G1, G2 ($2 million) is large enough

to satisfy the gain test in paragraph (b)(3)(iii) of this

section ($1 million or more). P also satisfies the

closely-held test during the look-back period for G2.

However, P does not satisfy the ownership test as of

the date of transfer. Accordingly, P is not a specified

partnership with respect to G2 and, thus, P is not a

security-required person with respect to G2. P does

not need an eligibility certificate with respect to G2

in order to make a proper deferral election with respect to G2.

(iii) G3. P satisfies the ownership test as of the

date of the transfer. P also satisfies the closely-held

test during the look-back period for G3. Also, G3 is

large enough to satisfy the gain test. Accordingly, P

is a security-required person with respect to G3, and

G3 is a security-required gain. Consequently, P may

not elect to defer G3 unless, not later than the date on

which P files its Federal income tax return for Year 2,

P has received an eligibility certificate with respect

to G3. Even if P has received such an eligibility certificate, P may not elect to defer a larger amount of

G3 than the permitted deferral amount shown on the

eligibility certificate.

(f) Applicability date. This section applies to any covered transfer that occurs

after [DATE OF PUBLICATION OF FINAL RULE].

Par. 5. Section 1.1400Z2(b)-1 is

amended by:

1. Revising paragraph (c)(1)(iv).

2. Adding paragraph (c)(1)(v).

3. Revising paragraph (j)(1).

4. Adding paragraph (j)(3).

The revisions and additions read as follows:

§ 1.1400Z2(b)-1 Inclusion of gains

that have been deferred under section

1400Z-2(a).

*****

May 3, 2021

(c) * * *

(1) * * *

(iv) A QOF in which an eligible taxpayer holds a qualifying investment loses

its status as a QOF; or

(v) An event of default occurs under a deferral agreement (described in

§ 1.1400Z2(a)-2(d)(4)) entered into between a security-required person and the

IRS (in which case the deferred gain to be

included is the gain whose deferral was

made possible by the eligibility certificate

that was based on the agreement).

*****

(j) * * *

(1) In general. Except as provided in

paragraph (j)(3) of this section, the provisions of this section are applicable for

taxable years beginning after March 13,

2020.

*****

(3) Specific rules. Paragraph (c)(1)

(v) of this section applies to any deferral

agreement (as defined in § 1.1400Z2(a)2(d)(4)) entered into after [DATE OF

PUBLICATION OF FINAL RULE].

Par. 6. Section 1.1400Z2(d)-1 is

amended by:

1. Revising paragraphs (d)(3)(v)(D)

and (e)(1).

2. Redesignating paragraphs (e)(2)

introductory text and (e)(2)(i) and (ii) as

paragraphs (e)(2)(i) and (e)(2)(i)(A) and

(B).

3. Adding a subject heading for newly

redesignated paragraph (e)(2).

4. Adding new paragraph (e)(2)(ii).

The revisions and additions read as follows:

§ 1.1400Z2(d)-1 Qualified opportunity

funds and qualified opportunity zone

businesses.

*****

(d) * * *

(3) * * *

(v) * * *

(D) Federally declared disasters. If

the qualified opportunity zone business

is located in a qualified opportunity zone

impacted by a federally declared disaster (as defined in section 165(i)(5)(A)),

the qualified opportunity zone business

may receive not more than an additional

24 months to expend its working capital

assets, as long as it otherwise meets the

May 3, 2021

requirements of paragraph (d)(3)(v) of

this section. For purposes of the preceding sentence, meeting the requirements of

paragraph (d)(3)(v) of this section may be

determined by reference either to the original amount of working capital assets designated in writing under paragraph (d)(3)

(v)(A) of this section and reasonable written schedule under paragraph (d)(3)(v)(B)

of this section or to a new or revised written designation and written schedule that

satisfy the requirements of paragraph (d)

(3)(v)(A) and (B) of this section, respectively. A new or revised written designation of the amount of working capital assets and reasonable written schedule for

expending that amount may be used only

if adopted not later than 120 days after the

close of the incident period, as defined in

44 CFR 206.32(f), with respect to that disaster. In determining whether a new or

revised schedule satisfies the requirements

of paragraph (d)(3)(v)(B) of this section,

the planned completion of spending must

take into account the up-to-31 month period originally allowed under paragraph (d)

(3)(v)(B) of this section, plus the up-to-24

additional months provided in this paragraph (d)(3)(v)(D).

*****

(e) * * *

(1) In general. Except as provided in

paragraph (e)(2) of this section, the provisions of this section are applicable for

taxable years beginning after March 13,

2020.

(2) Exceptions. * * *

(ii) Flexibility with respect to working

capital safe harbor plans in the event of

a federally declared disaster. The final

three sentences in paragraph (d)(3)(v)(D)

are applicable for taxable years beginning

after [DATE OF PUBLICATION OF FINAL RULE].

Par. 7. Section 1.1445-3 is amended by

adding paragraph (e)(5) to read as follows:

§ 1.1445-3 Adjustments to amount

required to be withheld pursuant to

withholding certificate.

*****

(e) * * *

(5) Special rule for gain deferred under

section 1400Z-2(a). The Internal Revenue

Service will issue a withholding certificate under this paragraph (e) that excuses

1144

withholding or that permits a transferee to

withhold a reduced amount if the transferor has obtained an eligibility certificate

under § 1.1400Z2(a)-2 from the IRS with

respect to the transfer. The amount by

which the transferee may reduce the withholding (including a reduction to zero) is

the amount of security provided on the eligibility certificate. If this paragraph (e)(5)

applies, the requirements in paragraphs

(e)(1) through (e)(4) of this section are

deemed to have been satisfied. This paragraph (e)(5) applies to any covered transfer defined in § 1.1400Z2(a)-2(c)(2) that

occurs after [DATE OF PUBLICATION

OF FINAL RULE].

*****

Par. 8. Section 1.1446-3 is amended by

revising paragraph (b)(2)(i)(B)(1) introductory text to read as follows:

§ 1.1446-3 Time and manner of

calculating and paying over the 1446 tax.

*****

(b) * * *

(2) * * *

(i) * * *

(B) * * *

(1) To the extent applicable, in computing the 1446 tax due with respect to a foreign partner, a partnership may consider a

certificate received from such partner under § 1.1446-6(c)(1)(i), (ii) or (iv) and the

amount of state and local taxes permitted

to be considered under § 1.1446-6(c)(1)

(iii). For this purpose, a partnership shall

first consider under § 1.1446-6(c)(1)(iv)

the partner’s permitted deferral amounts

and then annualize the partner’s allocable

share of the partnership’s items of effectively connected income, gain, deduction,

and loss before—

*****

Par. 9. Section 1.1446-6 is amended by:

1. Revising paragraph (a)(1).

2. Revising the first sentence of paragraph (a)(2).

3. Adding a sentence at the end of paragraph (c)(1).

4. Adding paragraph (c)(1)(iv).

5. Adding a sentence at the end of paragraph (c)(2)(i).

6. Revising the seventh sentence of

paragraph (d)(3)(i).

7. Adding a sentence at the end of paragraph (f).

Bulletin No. 2021–18

The revisions and additions read as follows:

§ 1.1446-6 Special rules to reduce a

partnership’s 1446 tax with respect to

a foreign partner’s allocable share of

effectively connected taxable income.

(a) In general—(1) Purpose and scope.

This section provides rules regarding

when a partnership required to pay withholding tax under section 1446 (1446 tax),

or an installment of 1446 tax, may consider certain partner-level deductions and

losses and eligibility certificates under

§ 1.1400Z2(a)-2(d) in computing its 1446

tax obligation under § 1.1446-3. This section also provides rules regarding when a

partnership is not required to pay a de minimis amount of 1446 tax due with respect

to a nonresident alien individual partner.

A partnership determines the applicability of the rules of this section on a partner-by-partner basis for each installment

period and when completing its Form

8804, “Annual Return for Partnership

Withholding Tax (Section 1446),” and

paying 1446 tax for the partnership taxable year. Except with respect to certain

state and local taxes paid by the partnership on behalf of the partner, to apply the

rules of this section with respect to a foreign partner, the partnership must receive

a certificate described in § 1.1446-6(c)(1)

(i) and (ii) from such partner for each partnership taxable year or an eligibility certificate described in § 1.1400Z2(a)-2(d) for

each security-required gain (as defined in

§ 1.1400Z2(a)–2(c)(1)). Paragraph (b) of

this section identifies the foreign partners

to which this section applies. Paragraph

(c) of this section identifies the deductions

and losses and security-required gains

that a foreign partner may certify to the

partnership as well as the state and local

taxes paid by the partnership on behalf of

the foreign partner that can be taken into

account without a certification, and establishes an exception that permits a partnership to not pay a de minimis amount

of 1446 tax with respect to a nonresident

alien partner. Paragraph (c) of this section

also sets forth the requirements for a valid certificate. Paragraphs (a)(2) and (d) of

this section establish when a partnership

may rely on and consider a foreign partner’s certificate in computing its 1446 tax,

Bulletin No. 2021–18

and the effects of relying on such a certificate. Paragraph (d) of this section also

describes the effects of a partnership relying on a certificate (including an updated

certificate) and the reporting requirements

of a partnership with respect to a certificate. Paragraph (e) of this section sets

forth examples that illustrate the rules of

this section. Paragraph (f) of this section

provides the Effective/Applicability date.

Paragraph (g) of this section provides a

transition rule.

(2) Reasonable reliance on a certificate. Subject to § 1.1446-2 and the rules

of this section, a partnership receiving a

certificate (including an updated certificate or status update under paragraph (c)

(2)(ii)(B) of this section) of deductions

and losses or an eligibility certificate from

a partner provided in accordance with the

provisions of this section may reasonably rely on the certificate of deductions

and losses (to the extent of the certified

deductions and losses or other representations set forth in the certificate) or eligibility certificate (to the extent of the

permitted deferral amount determined in

§ 1.1400Z2(a)-2(d)(7)) until such time

that it has actual knowledge or reason to

know that the certificate is defective or

that the time for receiving an updated certificate or status update from the partner

under paragraph (c)(2)(ii)(B) of this section has expired. * * *

*****

(c) * * *

(1) * * * Under paragraph (c)(1)(iv) of

this section, a partnership may take into

account eligibility certificates submitted

by a foreign partner with respect to security-required gains.

*****

(iv) Consideration of eligibility certificates. A partner that is a nonresident

alien or foreign corporation that satisfies

the requirements of § 1.1400Z2(a)-1(a)(3)

may provide a copy of an eligibility certificate, as defined in § 1.1400Z2(a)–2(d)(1),

for each of the partner’s security-required

gains, as defined in § 1.1400Z2(a)-2(c)(1).

*****

(2) * * *

(i) * * * A partner’s certification under

paragraph (c)(1)(iv) of this section shall

be the eligibility certificate described in

§ 1.1400Z2(a)-2(d)(1).

*****

1145

(d) * * *

(3) * * *

(i) * * * For an installment period other

than the first installment period for which

the partnership considers a foreign partner’s certificate or updated certificate, the

partnership may, instead of attaching any

partner’s certificate, attach to Form 8813 a

list containing the name, TIN, the amount

of certified deductions and losses, the

amount of gain excluded resulting from

an eligibility certificate, and the amount of

state and local taxes the partnership may

consider under paragraph (c)(1)(iii) of this

section for each foreign partner whose

certificate was relied upon.

*****

(f) * * * Paragraph (c)(1)(iv) of this

section and the references in paragraphs

(a)(1), (a)(2), (c)(1), and (d)(3)(i) of this

section to eligibility certificates, covered

transfers and security-required gains, apply to any covered transfers (as defined

in § 1.1400Z2(a)-2(c)(2)) occurring after

[DATE OF PUBLICATION OF FINAL

RULE].

*****

Par. 10. Section 1.1446-7 is amended

by adding a sentence at the end of the section to read as follows:

§ 1.1446-7 Effective/Applicability date.

* * * The references in § 1.1446-3(b)

(2)(i)(B)(1) to § 1.1446-6(c)(1)(iv) apply

to partnership taxable years ending after

[DATE OF PUBLICATION OF FINAL

RULE].

Par. 11. Section 1.1446(f)-2 is amended by adding paragraphs (b)(8) and (c)

(5) and by adding a sentence to the end of

paragraph (f) to read as follows:

§ 1.1446(f)-2 Withholding on the transfer

of a non-publicly traded partnership

interest.

*****

(b) * * *

(8) Gain deferred under section

1400Z-2(a). A transferee may rely on a certification from the transferor that includes

a copy of an eligibility certificate (as described in § 1.1400Z2(a)-2(d)) with respect

to the transfer for an amount of security that

is greater than or equal to the maximum security amount. See paragraph (c)(5) of this

May 3, 2021

section for when an eligibility certificate

provides an amount of security that is less

than the maximum security amount.

(c) * * *

(5) Gain deferred under section

1400Z-2(a). A transferee may rely on a

certification from a transferor that includes a copy of an eligibility certificate

(as described in § 1.1400Z2(a)-2(d))

with respect to the transfer to reduce the

amount required to be withheld under this

section by the amount of security provided on the eligibility certificate.

*****

(f) Applicability date. * * * Paragraphs

(b)(8) and (c)(5) of this section apply

to any covered transfer (as defined in

§ 1.1400Z2(a)-2(c)(2)) that occurs after

[DATE OF PUBLICATION OF FINAL

RULE].

Sunita Lough,

Deputy Commissioner for Services

and Enforcement.

(Filed by the Office of the Federal Register on April

12, 2021, 4:15 p.m., and published in the issue of the

Federal Register for April 14, 2021, 86 F.R. 19585)

Announcement of

Disciplinary Sanctions

From the Office of

Professional Responsibility

Announcement 2021-8

The Office of Professional Responsibility (OPR) announces recent disciplinary

sanctions involving attorneys, certified

public accountants, enrolled agents, enrolled actuaries, enrolled retirement plan

agents, appraisers, and unenrolled/unlicensed return preparers (individuals who

are not enrolled to practice and are not

licensed as attorneys or certified public

accountants). Licensed or enrolled practitioners are subject to the regulations governing practice before the Internal Revenue

Service (IRS), which are set out in Title 31,

Code of Federal Regulations, Subtitle A,

Part 10, and which are released as Treasury

Department Circular No. 230. The regulations prescribe the duties and restrictions

relating to such practice and prescribe the

May 3, 2021

disciplinary sanctions for violating the

regulations. Unenrolled/unlicensed return

preparers are subject to Revenue Procedure

81-38 and superseding guidance in Revenue Procedure 2014-42, which govern a

preparer’s eligibility to represent taxpayers

before the IRS in examinations of tax returns the preparer both prepared for the taxpayer and signed as the preparer. Additionally, unenrolled/unlicensed return preparers

who voluntarily participate in the Annual

Filing Season Program under Revenue

Procedure 2014-42 agree to be subject to

the duties and restrictions in Circular 230,

including the restrictions on incompetent or

disreputable conduct.

The disciplinary sanctions to be imposed for violation of the applicable standards are:

Disbarred from practice before the

IRS—An individual who is disbarred

is not eligible to practice before the IRS

as defined at 31 C.F.R. § 10.2(a)(4) for a

minimum period of five (5) years.

Suspended from practice before the

IRS—An individual who is suspended is

not eligible to practice before the IRS as

defined at 31 C.F.R. § 10.2(a)(4) during

the term of the suspension.

Censured in practice before the

IRS—Censure is a public reprimand. Unlike disbarment or suspension, censure

does not affect an individual’s eligibility

to practice before the IRS, but OPR may

subject the individual’s future practice

rights to conditions designed to promote

high standards of conduct.

Monetary penalty—A monetary penalty may be imposed on an individual who

engages in conduct subject to sanction,

or on an employer, firm, or entity if the

individual was acting on its behalf and it

knew, or reasonably should have known,

of the individual’s conduct.

Disqualification of appraiser—An

appraiser who is disqualified is barred

from presenting evidence or testimony in

any administrative proceeding before the

Department of the Treasury or the IRS.

Ineligible for limited practice—An

unenrolled/unlicensed return preparer

who fails to comply with the requirements

in Revenue Procedure 81-38 or to comply

with Circular 230 as required by Revenue

Procedure 2014-42 may be determined ineligible to engage in limited practice as a

representative of any taxpayer.

1146

Under the regulations, individuals subject to Circular 230 may not assist, or accept assistance from, individuals who are

suspended or disbarred with respect to

matters constituting practice (i.e., representation) before the IRS, and they may

not aid or abet suspended or disbarred individuals to practice before the IRS.

Disciplinary sanctions are described in

these terms:

Disbarred by decision, Suspended by

decision, Censured by decision, Monetary penalty imposed by decision, and

Disqualified after hearing—An administrative law judge (ALJ) issued a decision

imposing one of these sanctions after the

ALJ either (1) granted the government’s

summary judgment motion or (2) conducted an evidentiary hearing upon OPR’s

complaint alleging violation of the regulations. After 30 days from the issuance

of the decision, in the absence of an appeal, the ALJ’s decision becomes the final

agency decision.

Disbarred by default decision, Suspended by default decision, Censured

by default decision, Monetary penalty

imposed by default decision, and Disqualified by default decision—An ALJ,

after finding that no answer to OPR’s

complaint was filed, granted OPR’s motion for a default judgment and issued a

decision imposing one of these sanctions.

Disbarment by decision on appeal,

Suspended by decision on appeal, Censured by decision on appeal, Monetary

penalty imposed by decision on appeal,

and Disqualified by decision on appeal—The decision of the ALJ was appealed to the agency appeal authority, acting as the delegate of the Secretary of the

Treasury, and the appeal authority issued a

decision imposing one of these sanctions.

Disbarred by consent, Suspended by

consent, Censured by consent, Monetary penalty imposed by consent, and

Disqualified by consent—In lieu of a

disciplinary proceeding being instituted or

continued, an individual offered a consent

to one of these sanctions and OPR accepted the offer. Typically, an offer of consent

will provide for: suspension for an indefinite term; conditions that the individual

must observe during the suspension; and

the individual’s opportunity, after a stated number of months, to file with OPR a

petition for reinstatement affirming com-

Bulletin No. 2021–18

pliance with the terms of the consent and

affirming current fitness and eligibility

to practice (i.e., an active professional license or active enrollment status, with no

intervening violations of the regulations).

Suspended indefinitely by decision in

expedited proceeding, Suspended indefinitely by default decision in expedited

proceeding, Suspended by consent in

expedited proceeding—OPR instituted

an expedited proceeding for suspension

(based on certain limited grounds, including loss of a professional license for

cause, and criminal convictions).

Determined ineligible for limited

practice—There has been a final determination that an unenrolled/unlicensed

return preparer is not eligible for limited

representation of any taxpayer because the

preparer violated standards of conduct or

failed to comply with any of the requirements to act as a representative.

A practitioner who has been disbarred

or suspended under 31 C.F.R. § 10.60, or

suspended under § 10.82, or a disqualified

appraiser may petition for reinstatement

before the IRS after the expiration of 5

years following such disbarment, suspension, or disqualification (or immediately

following the expiration of the suspension

or disqualification period if shorter than 5

years). Reinstatement will not be granted

unless the IRS is satisfied that the petitioner is not likely to engage thereafter in

conduct contrary to Circular 230, and that

granting such reinstatement would not be

contrary to the public interest.

Reinstatement decisions are published

at the individual’s request, and described

in these terms:

Reinstated to practice before the

IRS—The individual’s petition for reinstatement has been granted. The

agent, and eligible to practice before the

IRS, or in the case of an appraiser, the individual is no longer disqualified.

Reinstated to engage in limited practice before the IRS—The individual’s petition for reinstatement has been granted.

The individual is an unenrolled/unlicensed

return preparer and eligible to engage in

limited practice before the IRS, subject to

requirements the IRS has prescribed for

limited practice by tax return preparers.

OPR has authority to disclose the

grounds for disciplinary sanctions in these

situations: (1) an ALJ or the Secretary’s

delegate on appeal has issued a final decision; (2) the individual has settled a disciplinary case by signing OPR’s “consent to

sanction” agreement admitting to one or

more violations of the regulations and consenting to the disclosure of the admitted violations (for example, failure to file Federal

income tax returns, lack of due diligence,

conflict of interest, etc.); (3) OPR has issued a decision in an expedited proceeding

for indefinite suspension; or (4) OPR has

made a final determination (including any

decision on appeal) that an unenrolled/unlicensed return preparer is ineligible to represent any taxpayer before the IRS.

Announcements of disciplinary sanctions appear in the Internal Revenue Bulletin at the earliest practicable date. The

sanctions announced below are alphabetized first by state and second by the last

names of the sanctioned individuals.

City & State

Name

Professional

Designation

Disciplinary Sanction

Effective Date(s)

Arizona

Scottsdale

Ketelaar, Erik A.

CPA

Suspended by decision in

expedited proceeding under

31 C.F.R. § 10.82(b)

Indefinite from

March 19, 2021

California

Fresno

Groom, Kendall J.

CPA

Indefinite from

February 19, 2021

Lakewood

Datta, Gaurav D.

Attorney

Pleasanton

Ramanan,

Subramanian E.

CPA

Suspended by default decision

in expedited proceeding under

31 C.F.R. § 10.82(b)

Suspended by decision in

expedited proceeding under

31 C.F.R. § 10.82(b)

Suspended by decision in

expedited proceeding under

31 C.F.R. § 10.82(b)

Colorado

Denver

Yobst, Stephen J.

CPA

Suspended by default decision

in expedited proceeding under

31 C.F.R. § 10.82(b)

Indefinite from

February 19, 2021

Connecticut

Danbury

O’Reilly, Francis J.

Attorney

Indefinite from

March 25, 2021

Fairfield

Glass, David L.

CPA

Suspended by decision in

expedited proceeding under

31 C.F.R. § 10.82(b)

Suspended by decision in

expedited proceeding under

31 C.F.R. § 10.82(b)

Bulletin No. 2021–18

1147

Indefinite from

January 25, 2021

Indefinite from

March 25, 2021

Indefinite from

January 8, 2021

May 3, 2021

City & State

Name

Professional

Designation

Disciplinary Sanction

Effective Date(s)

Georgia

Canton

Bryan, Matthew A.

Attorney

Suspended by default decision

in expedited proceeding under

31 C.F.R. § 10.82(b)

Indefinite from

January 25, 2021

Indiana

Indianapolis

Wilson, Randall D.

Unenrolled Tax

Return Preparer

Kentucky

Grand Rivers

Craft, Joseph H.

CPA

Suspended by consent for

admitted violations of

31 C.F.R. § 10.51(a)(10)

Indefinite from

February 19, 2021

Gaffey, Richard J.

CPA

Suspended by default decision

in expedited proceeding under

31 C.F.R. § 10.82(b)

Indefinite from

February 19, 2021

Robbins,

Jonathan D.

Attorney

Suspended by decision in

expedited proceeding under

31 C.F.R. § 10.82(b)

Indefinite from

February 24, 2021

Michigan

N. Bloomfield

Hoffert, Myles B.

Attorney

Suspended by default decision

in expedited proceeding under

31 C.F.R. § 10.82(b)

Indefinite from

February 24, 2021

Minnesota

Rochester

Quinn, Michael J.

Attorney

Suspended by default decision

in expedited proceeding under

31 C.F.R. § 10.82(b)

Indefinite from

January 25, 2021

New York

Brooklyn

Shweky, Alan J.

Attorney

New York

Stamm, Dennis H.

CPA

Suspended by decision in

expedited proceeding under

31 C.F.R. § 10.82(b)

North Carolina

Cary

Thacker, Sarah K.

Attorney

Suspended by default decision

in expedited proceeding under

31 C.F.R. § 10.82(b)

Indefinite from

February 19, 2021

Tennessee

White Bluff

Wallick, Stephen

Enrolled Agent

Disbarred by Decision on

Appeal

Indefinite from

July 24, 2019

Reinstated to practice

before the IRS, effective

January 29, 2021

Massachusetts

Medfield

Maryland

Potomac

May 3, 2021

1148

Reinstated to practice

before the IRS, effective

March 10, 2021

Indefinite from

January 25, 2021

Bulletin No. 2021–18

Definition of Terms

Revenue rulings and revenue procedures

(hereinafter referred to as “rulings”) that

have an effect on previous rulings use the

following defined terms to describe the

­effect:

Amplified describes a situation where

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

being extended to apply to a variation of

the fact situation set forth therein. Thus, if

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

the same principle also applies to B, the

earlier ruling is amplified. (Compare with

modified, below).

Clarified is used in those instances

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

caused, or may cause, some confusion. It

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

Distinguished describes a situation

where a ruling mentions a previously published ruling and p

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