Bulletin No. 2020–50

HIGHLIGHTS

OF THIS ISSUE





Bulletin No. 2020–50

December 7, 2020

These synopses are intended only as aids to the reader in

identifying the subject matter covered. They may not be

relied upon as authoritative interpretations.

EMPLOYEE PLANS

INCOME TAX

NOTICE 2020-83, page 1597.

REV. PROC. 2020-51, page 1599.

EXEMPT ORGANIZATIONS

REV. RUL. 2020-26, page 1550.

This notice contains the 2020 Required Amendments List for

qualified individually designed plans and § 403(b) individually

designed plans.

T.D. 9923, page 1554.

This document contains final regulations under section 529A

of the Internal Revenue Code that provide guidance regarding programs under the Stephen Beck, Jr., Achieving a Better

Life Experience (ABLE) Act of 2014. Section 529A provides

rules under which States may establish and maintain a new

type of tax-favored savings program through which contributions may be made to the account of an eligible disabled

individual to meet qualified disability expenses. These accounts also receive favorable treatment for purposes of certain means-tested Federal programs. This document also

contains final regulations under the Tax Cuts and Jobs Act of

2017 (TCJA), which modified the contribution limits and other provisions of section 529A. In addition, these regulations

provide corresponding amendments to regulations under

sections 511 and 513, with respect to unrelated business

taxable income, sections 2501, 2503, 2511, 2642 and

2652, with respect to gift and generation-skipping transfer

taxes, and section 6011, with respect to reporting requirements.

Finding Lists begin on page ii.

This revenue procedure provides a safe harbor for taxpayers

in one of two situations to allow them to deduct certain expenses on their 2020 or later year return.

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 December 2020.

REV. RUL. 2020-27, page 1552.

This revenue ruling holds that a taxpayer cannot claim deductions for certain payments on its 2020 return when the

taxpayer received Paycheck Protection Program (PPP) loan

proceeds and has requested PPP loan forgiveness, but has

not received notice from the lender whether the PPP loan has

been forgiven at the end of 2020.

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.

December 7, 2020 

Bulletin No. 2020–50

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. 2020-26

This revenue ruling provides various

prescribed rates for federal income tax

AFR

110% AFR

120% AFR

130% AFR

AFR

110% AFR

120% AFR

130% AFR

150% AFR

175% AFR

AFR

110% AFR

120% AFR

130% AFR

Short-term adjusted AFR

Mid-term adjusted AFR

Long-term adjusted AFR

December 7, 2020

purposes for December 2020 (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. 2020-26 TABLE 1

Applicable Federal Rates (AFR) for December 2020

Period for Compounding

Annual

Semiannual

Quarterly

Short-term

0.15%

0.15%

0.15%

0.17%

0.17%

0.17%

0.18%

0.18%

0.18%

0.20%

0.20%

0.20%

Mid-term

0.48%

0.48%

0.48%

0.53%

0.53%

0.53%

0.58%

0.58%

0.58%

0.62%

0.62%

0.62%

0.72%

0.72%

0.72%

0.84%

0.84%

0.84%

Long-term

1.31%

1.31%

1.31%

1.45%

1.44%

1.44%

1.58%

1.57%

1.57%

1.71%

1.70%

1.70%

REV. RUL. 2020-26 TABLE 2

Adjusted AFR for December 2020

Period for Compounding

Annual

Semiannual

0.11%

0.11%

0.36%

0.36%

0.99%

0.99%

1550

Monthly

0.15%

0.17%

0.18%

0.20%

0.48%

0.53%

0.58%

0.62%

0.72%

0.84%

1.31%

1.44%

1.56%

1.69%

Quarterly

0.11%

0.36%

0.99%

Monthly

0.11%

0.36%

0.99%

Bulletin No. 2020–50

REV. RUL. 2020-26 TABLE 3

Rates Under Section 382 for December 2020

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.)

.99%

.99%

REV. RUL. 2020-26 TABLE 4

Appropriate Percentages Under Section 42(b)(1) for December 2020

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

7.20%

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

3.09%

REV. RUL. 2020-26 TABLE 5

Rate Under Section 7520 for December 2020

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

December 2020. See Rev. Rul. 2020-26, page 1550.

Section 280G.—Golden

Parachute Payments

The applicable federal short-term, mid-term,

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

December 2020. See Rev. Rul. 2020-26, page 1550.

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 December 2020. See

Rev. Rul. 2020-26, page 1550.

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

December 2020. See Rev. Rul. 2020-26, page 1550.

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 December 2020. See Rev.

Rul. 2020-26, page 1550.

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

December 2020. See Rev. Rul. 2020-26, page 1550.

.6%

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

December 2020. See Rev. Rul. 2020-26, page 1550.

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

December 2020. See Rev. Rul. 2020-26, page 1550.

Section 7520.—Valuation

Tables

The applicable federal mid-term rates are set

forth for the month of December 2020. See Rev.

Rul. 2020-26, page 1550.

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

December 2020. See Rev. Rul. 2020-26, page 1550.

Bulletin No. 2020–50

1551

December 7, 2020

Deductibility of PPP

Expenses

Rev. Rul. 2020-27

ISSUE

May a taxpayer that received a loan

guaranteed under the Paycheck Protection

Program (PPP) authorized under section

7(a)(36) of the Small Business Act (15

U.S.C. 636(a)(36)) (covered loan), and

paid or incurred certain otherwise deductible expenses listed in section 1106(b) of

the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), Pub. L. No.

116-136, 134 Stat. 281 (March 27, 2020)

deduct those expenses in the taxable year

in which the expenses were paid or incurred if, at the end of such taxable year,

the taxpayer reasonably expects to receive

forgiveness of the covered loan based on

the otherwise deductible expenses?

FACTS

In each of the following situations, the

taxpayer computes taxable income on the

basis of the calendar year for federal income tax purposes and received a covered

loan from a private lender in 2020.

Situation 1. During the period beginning

on February 15, 2020, and ending on December 31, 2020 (covered period), Taxpayer A (A) paid expenses that are described in

section 161 of the Internal Revenue Code

(Code) and section 1106(a) of the CARES

Act (eligible expenses). These expenses include payroll costs that qualify under section 1106(a)(8) of the CARES Act, interest

on a mortgage that qualifies as interest on

a covered mortgage obligation under section 1106(a)(2) of the CARES Act, utility

payments that qualify as covered utility

payments under section 1106(a)(5) of the

CARES Act, and rent that qualifies as payment on a covered rent obligation under

section 1106(a)(4) of the CARES Act. In

November 2020, pursuant to the terms of

section 1106 of the CARES Act, A applied

to the lender for forgiveness of the covered

loan on the basis of the eligible expenses

it paid during the covered period. At that

time, and based on A’s payment of the eligible expenses, A satisfied all requirements

under section 1106 of the CARES Act for

December 7, 2020

forgiveness of the covered loan. The lender

does not inform A whether the loan will be

forgiven before the end of 2020.

Situation 2. During the covered period,

Taxpayer B (B) paid the same types of

eligible expenses that A paid in Situation

1. B, unlike A, did not apply for forgiveness of the covered loan before the end of

2020, although, taking into account B’s

payment of the eligible expenses during

the covered period, B satisfied all other

requirements under section 1106 of the

CARES Act for forgiveness of the covered

loan. B expects to apply to the lender for

forgiveness of the covered loan in 2021.

LAW

Section 1102 and 1106 of the CARES

Act, established the PPP as a new loan

program administered by the U.S. Small

Business Administration (SBA) as part of

its section 7(a) Loan Program (15 U.S.C.

636(a)) that was designed to assist small

businesses nationwide adversely impacted

by the COVID–19 emergency to pay payroll

costs and other covered expenses. See Business Loan Program Temporary Changes;

Paycheck Protection Program, 85 FR 20811

(April 15, 2020). Under the PPP, the SBA

is permitted to guarantee the full principal

amount of a covered loan. Under section

1102(a)(2) of the CARES Act, a covered

loan is a loan made under the PPP during

the covered period. A covered loan may be

forgiven under section 1106 of the CARES

Act, based on certain eligible expenses being

paid or incurred during the covered period.

The covered period for making loans

was initially the period beginning on

February 15, 2020 and ending on June

30, 2020. See section 1102(a)(2) of the

CARES Act. The Paycheck Protection

Program Flexibility Act of 2020, Pub. L.

No. 116-142, 134 Stat. 641 (June 5, 2020),

extended the end date of the covered period for making loans from June 30, 2020 to

December 31, 2020.

An individual or entity that is eligible

to receive a covered loan (eligible recipient) can receive forgiveness of the full

principal amount of the covered loan up to

an amount equal to the following eligible

expenses that are paid or incurred during

the covered period: (1) payroll costs, (2)

interest on a covered mortgage obligation,

(3) any covered rent obligation payment,

1552

and (4) any covered utility payment. See

section 1106(b) of the CARES Act.

Under section 1106(i) of the CARES

Act, for purposes of the Code “any

amount which (but for [section 1106(i)])

would be includible in gross income of

the eligible recipient by reason of forgiveness described in [section 1106](b) shall

be excluded from gross income.” Section 1106(i) of the CARES Act excludes

the forgiven amounts from gross income

regardless of whether the income would

be (1) income from the discharge of indebtedness under section 61(a)(11) of the

Code, or (2) otherwise includible in gross

income under section 61 of the Code.

On May 2, 2020, the Department of the

Treasury and the Internal Revenue Service

(IRS) released Notice 2020-32, 2020-21

IRB 837 (May 18, 2020), which clarifies

that no deduction is allowed for an eligible expense that is otherwise deductible if

the payment of the eligible expense results

in forgiveness of a covered loan. Notice

2020-32 relied on section 265(a)(1) of

the Code and §1.265-1 of the Income Tax

Regulations, which provide that no deduction is allowed for any amount otherwise

allowable as a deduction to the extent the

amount is allocable to one or more classes

of income other than interest wholly exempt from the taxes imposed by subtitle A

of the Code. See generally section 265(a)

(1); §1.265-1. This rule applies “whether

or not any amount of income of that class

or classes is received or accrued.” Id. The

term “class of exempt income” means any

class of income that is either wholly excluded from gross income under any provision of subtitle A of the Code or wholly

exempt from the taxes imposed by subtitle

A of the Code under the provisions of any

other law. See §1.265-1(b)(1).

Notice 2020-32 also relied on authorities holding that deductions for otherwise

deductible expenses are disallowed if the

taxpayer receives reimbursement for such

expenses. Authorities addressing reimbursement further hold that an otherwise

allowable deduction is disallowed if there

is a reasonable expectation of reimbursement. See Burnett v. Commissioner, 356

F. 2d 755 (5th Cir. 1966) cert. denied 385

U.S. 832 (1966); Canelo v. Commissioner, 53 TC 217, 225-226 (1969), aff’d 447

F.2d 484 (9th Cir.1971); Charles Baloian

Co. v. Commissioner, 68 T.C. 620 (1977);

Bulletin No. 2020–50

Rev. Rul. 80-348, 1980-2 C.B. 60; Rev.

Rul. 79-263, 1979-2 C.B. 82.

In Burnett, a lawyer advanced expenses to clients that the clients were obligated to repay only to the extent the lawyer

was successful in obtaining recovery on

the client’s claim. The taxpayer argued

that the advances were deductible trade

or business expenses under section 162 of

the Code because there was no unconditional obligation on the part of the clients

to repay the advances. The court noted

that the taxpayer provided assistance only

to clients with claims that were likely to

be successful and that the advances were

“made to clients with the expectation, substantially realized, that they would be recovered.” 356 F.2d at 758. On that basis,

the court affirmed the Tax Court’s holding

that the advances were not deductible.

Similarly, in Canelo v. Commissioner, 53

TC 217, 225-226 (1969), aff’d 447 F.2d

484 (9th Cir.1971), a personal injury law

firm advanced litigation costs on behalf

of its clients, and the clients had no obligation to repay the costs unless their case

was successful. The law firm deducted the

litigation costs in the year paid and included the reimbursed costs in income in

the year of reimbursement. The law firm

screened clients to reduce the risk that the

advanced costs would not be repaid and

took cases when there was a “good hope”

of recovery. The court determined that the

law firm’s advances operated as loans to

its clients for which the law firm had an

expectation of reimbursement. Therefore,

deductions for the advances under section

162 were not allowed. See also Herrick v.

Commissioner, 63 T.C. 562 (1975) (similar effect); Silverton v. Commissioner, T.C.

Memo. 1977-198 (1977) (similar effect).

Under the related “tax benefit rule,” if

a taxpayer takes a proper deduction and,

in a later tax year, an event occurs that is

fundamentally inconsistent with the premise on which the previous deduction was

based (for example, an unforeseen refund

of deducted expenses), the taxpayer must

take the deducted amount into income. See

section 111 of the Code (providing that

gross income does not include income attributable to the recovery during a taxable

year of any amount deducted in any prior taxable year to the extent such amount

did not reduce the amount of tax imposed

by chapter 1 of the Code). The Supreme

Bulletin No. 2020–50

Court applied the tax benefit rule in Hillsboro National Bank v. Commissioner, 460

U.S. 370 (1983). In that case, the Court

observed that “[t]he basic purpose of the

tax benefit rule is to achieve rough transactional parity in tax … and to protect the

Government and the taxpayer from the

adverse effects of reporting a transaction

on the basis of assumptions that an event

in a subsequent year proves to have been

erroneous. Such an event, unforeseen at

the time of an earlier deduction, may in

many cases require the application of the

tax benefit rule.” Id. at 383.

ANALYSIS

In both Situation 1 and Situation 2, A

and B each have a reasonable expectation

of reimbursement. At the end of 2020, the

reimbursement of A’s and B’s eligible expenses, in the form of covered loan forgiveness, is reasonably expected to occur

– rather than being unforeseeable – such

that a deduction is inappropriate. Compare

Canelo, 53 TC at 225-226 with Hillsboro,

460 U.S. at 383. Section 1106(b), (d), and

(g) of the CARES Act, and the supporting

loan forgiveness application procedures

published by the SBA, provide covered

loan recipients like A and B with clear and

readily accessible guidance to apply for

and receive covered loan forgiveness. See

www.sba.gov/funding-programs/loans/

coronavirus-relief-options/paycheck-protection-program. Under these procedures,

each taxpayer calculates the amount of its

covered loan forgiveness on the basis of

the eligible expenses paid or accrued in

the covered period and submits a completed form and supporting documentation to their covered loan lender. See PPP

Loan Forgiveness Application Form 3508.

Within 60 days of receipt of an application

for forgiveness, their covered loan lenders

must issue a decision regarding A and B’s

applications. See section 1106(g) of the

CARES Act. Accordingly, A’s and B’s eligible expenses are not deducible because

there is a reasonable expectation of reimbursement.

Section 265(a)(1) of the Code also disallows any amount of A’s and B’s eligible

expenses otherwise allowable as a deduction under the Code, including section

161, to the extent the payment of such eligible expenses is allocable to tax-exempt

1553

income in the form of the reasonably expected covered loan forgiveness. The fact

that the tax-exempt income may not have

been accrued or received by the end of the

taxable year does not change this result

because the disallowance applies whether

or not any amount of tax-exempt income

in the form of covered loan forgiveness

and to which the eligible expenses are allocable is received or accrued. See section

265(a)(1); §1.265-1(b)(1).

Situation 1.

Based on the foregoing, when A completed its application for covered loan

forgiveness, A knew the amount of its

eligible expenses that qualified for reimbursement, in the form of covered loan

forgiveness, and had a reasonable expectation of reimbursement. The reimbursement, in the form of covered loan forgiveness, was foreseeable. Therefore, pursuant

to the foregoing authorities, A may not

deduct A’s eligible expenses.

In the alternative, section 265(a)(1)

disallows a deduction of A’s otherwise

deductible eligible expenses because the

expenses are allocable to tax-exempt income in the form of reasonably expected

covered loan forgiveness.

Situation 2.

Although B did not complete an application for covered loan forgiveness in

2020, at the end of 2020, B satisfied all

other requirements under section 1106 of

the CARES Act for forgiveness of the covered loan and at the end of 2020 expected

to apply to the lender for covered loan

forgiveness of the covered loan in 2021.

Thus, at the end of 2020 B both knew the

amount of its eligible expenses that qualified for reimbursement, in the form of

covered loan forgiveness, and had a reasonable expectation of reimbursement.

The reimbursement in the form of covered

loan forgiveness was foreseeable. Therefore, pursuant to the foregoing authorities,

B may not deduct B’s eligible expenses.

In the alternative, section 265(a)(1)

disallows a deduction of B’s otherwise

deductible eligible expenses because the

expenses are allocable to tax-exempt income in the form of reasonably expected

covered loan forgiveness.

December 7, 2020

HOLDING

A taxpayer that received a covered

loan guaranteed under the PPP and paid

or incurred certain otherwise deductible

expenses listed in section 1106(b) of the

CARES Act may not deduct those expenses in the taxable year in which the expenses were paid or incurred if, at the end of

such taxable year, the taxpayer reasonably

expects to receive forgiveness of the covered loan on the basis of the expenses it

paid or accrued during the covered period,

even if the taxpayer has not submitted an

application for forgiveness of the covered

loan by the end of such taxable year.

EFFECT ON OTHER DOCUMENTS

This revenue ruling amplifies Notice

2020-32, 2020-21 IRB 837 (May 18,

2020).

DRAFTING INFORMATION

The principal authors of this revenue ruling are Sarah Daya and Charles

Gorham of the Office of Associate Chief

Counsel (Income Tax & Accounting). For

further information regarding this revenue

ruling, contact Ms. Daya at (202) 3174891 (not a toll-free number).

26 CFR §1.529A added; 1.511-2 amended; 1.513-1

amended; 25.2501-1 amended; 25.2503-3 amended;

25.2503–6 amended; 25.2511-2 amended; 26.26421 amended

T.D. 9923

DEPARTMENT OF THE

TREASURY

Internal Revenue Service

26 CFR Parts 1, 25, 26,

301, and 602

SUMMARY: This document contains

final regulations that provide guidance

regarding programs under the Stephen

Beck, Jr., Achieving a Better Life Experience Act of 2014 (ABLE Act). The ABLE

Act provides rules under which States or

State agencies or instrumentalities may establish and maintain a Federal tax-favored

savings program for eligible individuals

with a disability who are the owners and

designated beneficiaries of accounts to

which contributions may be made to meet

qualified disability expenses. These accounts also receive favorable treatment for

purposes of certain means-tested Federal

programs. In addition, these final regulations provide corresponding amendments

to the unrelated business income tax regulations, the gift and generation-skipping

transfer tax regulations, and the electronic filing requirements regulations. These

regulations affect eligible individuals that

are designated beneficiaries of accounts

established and maintained under the

ABLE Act.

DATES: Effective date: These final regulations are effective November 19, 2020.

Applicability dates: For dates of applicability, see §§ 1.511-2(e)(2), 1.513-(g),

1.529A-1(c), 1.529A-2(q), 1.529A-3(h),

1.529A-4(e), 1.529A-5(g), 1.529A-6(f),

1.529A-7(b), 1.529A-8(a), and 301.60112(g).

FOR FURTHER INFORMATION

CONTACT: Concerning the final regulations under section 529A, Taina Edlund,

(202) 317-4541, or Julia Parnell, (202)

317-4086; concerning the estate and gift

tax regulations, Lorraine Gardner, (202)

317-4645, or Daniel Gespass, (202) 3174632; concerning the reporting provisions

under section 529A, Isaac Brooks, (202)

317-6844 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Guidance under Section

529A: Qualified ABLE

Programs

Background

ACTION: Final regulations.

This document contains final regulations amending 26 CFR parts 1, 25, 26

and 301, to provide guidance under section 529A of the Internal Revenue Code

(Code). Section 529A provides rules

under which States or State agencies

December 7, 2020

1554

AGENCY: Internal Revenue Service

(IRS), Treasury.

or instrumentalities may establish and

maintain a Federal tax-favored savings

program through which contributions may

be made to the account of an eligible individual with a disability to meet qualified

disability expenses.

1. The ABLE Act

Section 529A was added to the Code

on December 19, 2014, by the ABLE Act,

which was enacted as part of the Tax Increase Prevention Act of 2014, Public

Law 113-295 (128 Stat. 4010). The statutory requirements of section 529A apply

to taxable years beginning after December

31, 2014.

Congress recognized the special financial burdens borne by families raising

children with disabilities and the fact that

increased financial needs generally continue throughout the lifetime of an individual with a disability. Section 101 of the

ABLE Act confirms that one of the ABLE

Act’s purposes is to “provide secure funding for disability-related expenses on

behalf of designated beneficiaries with

disabilities that will supplement, but not

supplant, benefits” otherwise available to

those individuals, whether through private

sources, employment, public programs,

or otherwise. Before the enactment of

the ABLE Act, various types of Federal

tax-advantaged savings arrangements existed, but none adequately served the goal

of promoting saving for those supplemental financial needs.

Section 529A allows the creation of a

qualified ABLE program by a State (or

agency or instrumentality thereof) under

which a separate ABLE account may be

established for an eligible individual with

a disability who is the designated beneficiary and owner of that account. Generally, contributions to an ABLE account are

subject to both an annual limit and a cumulative limit, and, when made by a person other than the designated beneficiary,

are treated as gifts to the designated beneficiary. These gifts may be sheltered from

Federal gift tax by the annual per-donee

gift tax exclusion. Distributions from an

ABLE account for the qualified disability

expenses of the designated beneficiary are

not included in the designated beneficiary’s gross income. However, the earnings

portion of distributions from an ABLE

Bulletin No. 2020–50

account in excess of the qualified disability expenses generally is includible in the

gross income of the designated beneficiary. An ABLE account may be used for the

long-term benefit or short-term needs of

the designated beneficiary.

Section 103 of the ABLE Act, while

not a tax provision, is critical to achieving the goal of the ABLE Act of providing

financial resources for the benefit of individuals with disabilities. Because so many

of the programs that provide essential financial, occupational, and other resources

and services to individuals with disabilities are available only to persons whose

resources and income do not exceed relatively low dollar limits, section 103 generally disregards a designated beneficiary’s

ABLE account (specifically, the account

balance, contributions to the account, and

distributions from the account) for purposes of determining the designated beneficiary’s eligibility for, and the amount of

any assistance or benefits provided under,

certain means-tested Federal programs.

However, in the case of the Supplemental

Security Income (SSI) program under title

XVI of the Social Security Act, distributions for certain housing expenses are not

disregarded, and the balance (including

earnings) in an ABLE account is considered a resource of the designated beneficiary to the extent it exceeds $100,000.

Section 103 also addresses the impact of

an excess balance in an ABLE account on

the designated beneficiary’s eligibility for

benefits under the SSI program and Medicaid.

Finally, section 104 of the ABLE Act

addresses the treatment of ABLE accounts

in bankruptcy proceedings.

2. Guidance

A. Notice 2015-18

Shortly after the ABLE Act was enacted, the Department of the Treasury

(Treasury Department) and the IRS were

advised that several state legislatures were

in the process of enacting enabling legislation, and ABLE programs might be in

operation in some states before guidance

under section 529A could be issued by the

Treasury Department and the IRS. In order

to prevent the lack of regulatory guidance

from discouraging states to enact enabling

Bulletin No. 2020–50

legislation and create ABLE programs,

the Treasury Department and the IRS issued Notice 2015-18, 2015-12 I.R.B. 765

(March 23, 2015). The Notice provided

that future section 529A guidance would

confirm that the owner of an ABLE account is the designated beneficiary of the

account, and that a person with signature

authority over the account (if other than

the account’s designated beneficiary) may

neither have nor acquire any beneficial

interest in the ABLE account and must

administer the account for the designated

beneficiary of the account. The Notice further provided that, in the event that State

legislation creating an ABLE program

enacted in accordance with section 529A

prior to the issuance of guidance does not

fully comport with the guidance when

issued, the Treasury Department and the

IRS intended to provide transition relief

to give the States sufficient time to implement the changes necessary to avoid the

disqualification of the program and of the

ABLE accounts already established under

the program.

B. 2015 proposed regulations

On June 22, 2015, the Treasury Department and the IRS published a notice

of proposed rulemaking (NPRM) in the

Federal Register (REG-102837-15; 80

FR 35602) proposing regulations under

section 529A regarding programs under

the ABLE Act (2015 proposed regulations). The 2015 proposed regulations

set forth the requirements a program established and maintained by a State, or

agency or instrumentality thereof, must

satisfy to be considered a qualified ABLE

program under section 529A. They covered the requirements for establishing an

ABLE account (including those that an

individual must satisfy to be an eligible

individual qualified to be the designated

beneficiary of an ABLE account) and the

requirements concerning contributions to

an ABLE account (including the limitations on the amount and investment of

such contributions). In addition, the 2015

proposed regulations addressed the gift

and generation-skipping transfer (GST)

tax consequences of contributions to an

ABLE account, as well as the Federal income, gift, and estate tax consequences

of distributions from, and changes in the

1555

designated beneficiary of, an ABLE account. The 2015 proposed regulations also

provided guidance on requirements with

respect to rollovers and program-to-program transfers from one ABLE account

to another and on the recordkeeping and

reporting requirements of a qualified

ABLE program. Finally, the 2015 proposed regulations provided corresponding

amendments to regulations under sections

511 and 513 (with respect to unrelated

business taxable income), sections 2501,

2503, 2511, 2642, and 2652 (with respect

to gift and GST taxes), and section 6011

(with respect to electronic filing requirements).

C. Notice 2015-81

More than 200 written comments were

received in response to the 2015 proposed

regulations and a public hearing was held

on October 14, 2015. Numerous commenters asked the Treasury Department

and the IRS to issue interim guidance to

address three requirements under the proposed regulations that they said would create significant barriers to the development

of qualified ABLE programs by the States:

(i) the requirement to establish safeguards

to categorize distributions from an ABLE

account; (ii) the requirement to request

the taxpayer identification number (TIN)

of every contributor to an ABLE account;

and (iii) the requirement to process disability certifications with signed physicians’ diagnoses.

In response to the request for interim

guidance, the Treasury Department and

the IRS published Notice 2015-81, 201549 I.R.B. 784 (Dec. 7, 2015), advising

that the final regulations would address

these requirements in the following manner: First, the final regulations would

eliminate the requirement that a qualified

ABLE program distinguish between types

of expenses. Second, the final regulations

would eliminate the requirement that a

qualified ABLE program must request

the TIN of each contributor at the time a

contribution is made if the program has a

system in place to identify and reject excess contributions and excess aggregate

contributions before they are deposited

into an ABLE account. Third, the final

regulations would permit a certification

of eligibility to satisfy the requirement for

December 7, 2020

filing a disability certification. A certification of eligibility is a certification, under

penalties of perjury, that the individual

(or the individual’s agent under a power

of attorney or a parent or legal guardian

of the individual) has a signed physician’s

diagnosis, and that the signed diagnosis

will be retained and provided to the ABLE

program or the IRS on request.

3. The PATH Act Amendment

On December 18, 2015, Section 303 of

the Protecting Americans from Tax Hikes

Act of 2015 (the PATH Act), was enacted

as part of the Consolidated Appropriations

Act, 2016, Public Law 114-113 (129 Stat.

2242). The PATH Act amended section

529A(b)(1), effective for taxable years

beginning after December 31, 2014, by

removing the requirement that a State’s

qualified ABLE program allow the establishment of an ABLE account only for a

designated beneficiary who is a resident of

that State or of a contracting State.

4. The TCJA

The contribution limits and other provisions of section 529A were modified by

the Tax Cuts and Jobs Act, Public Law

115-97, 131 Stat. 2054, (2017) (TCJA),

signed into law on December 22, 2017.

The TCJA amended section 529A(b)(2)

(B) to allow an employed designated beneficiary described in new section 529A(b)

(7) to contribute, prior to January 1,

2026, an additional amount in excess

of the limit in section 529A(b)(2)(B)

(i) (the annual gift tax exclusion amount

in section 2503(b), formerly set forth in

section 529A(b)(2)(B)). This additional

permissible contribution is subject to its

own limit as described in section 529A(b)

(2)(B)(ii). Specifically, this additional

contributed amount may not exceed the

lesser of (i) the designated beneficiary’s

compensation as defined by section 219(f)

(1) for the taxable year, or (ii) an amount

equal to the poverty line for a one-person

household for the calendar year preceding

the calendar year in which the taxable year

begins. The TCJA also amended the section 529A(b)(2) flush language to require

the designated beneficiary, or a person acting on behalf of the designated beneficiary, to maintain adequate records to ensure,

December 7, 2020

and to be responsible for ensuring, that the

requirements of section 529A(b)(2)(B)(ii)

are met.

New section 529A(b)(7)(A) identifies a designated beneficiary eligible to

make this additional contribution as one

who is an employee (including a self-employed individual) with respect to whom

there has been no contribution made for

the taxable year to: a defined contribution

plan meeting the requirements of sections

401(a) or 403(a); an annuity contract described in section 403(b); or an eligible

deferred contribution plan under section

457(b). Section 529A(b)(7)(B) defines the

term “poverty line” as having the meaning

provided in section 673 of the Community Services Block Grant Act (42 U.S.C.

9902).

The TCJA also amended section 529

(regarding qualified tuition programs) to

allow, before January 1, 2026, a limited

amount to be rolled over to an ABLE account from the designated beneficiary’s

own section 529 qualified tuition program

(QTP) account or from the QTP account

of certain family members. The TCJA

added section 529(c)(3)(C)(i)(III), which

provides that a distribution from a QTP

made after December 22, 2017, and before

January 1, 2026, is not subject to income

tax if, within 60 days of the distribution, it

is transferred to an ABLE account of the

designated beneficiary or a member of the

family of the designated beneficiary. Under section 529(c)(3)(C)(i), the amount of

any rollover to an ABLE account is limited

to the amount that, when added to all other

contributions made to the ABLE account

for the taxable year, does not exceed the

contribution limit for the ABLE account

under section 529A(b)(2)(B)(i), that is,

the annual gift tax exclusion amount under section 2503(b). This limited rollover

is described in more detail in Notice 201858, 2018-33 I.R.B. 305 (Aug. 13, 2018).

A. Notice 2018-62

To address the TCJA modifications to

section 529A, the Treasury Department

and the IRS published Notice 2018-62,

2018-34 I.R.B. 316 (Aug. 20, 2018),

which announced the intent of the Treasury Department and the IRS to issue

proposed regulations to implement these

changes and describes the anticipated

1556

rules to implement the statutory changes.

No comments were received in response

to the Notice.

B. 2019 proposed regulations

On October 10, 2019, the Treasury Department and the IRS published an NPRM

in the Federal Register (REG-12824618; 84 FR 54529) to address the TCJA

modifications to section 529A (2019 proposed regulations).

The 2019 proposed regulations confirmed that the employed designated beneficiary, or the person acting on his or her

behalf, is solely responsible for ensuring

that the requirements in section 529A(b)

(2)(B)(ii) are met and for maintaining

adequate records for that purpose. In addition, to minimize burdens for the designated beneficiary and the qualified ABLE

program, the 2019 proposed regulations

provided that ABLE programs may allow

a designated beneficiary or the person acting on his or her behalf to certify, under

penalties of perjury, that he or she is a designated beneficiary described in section

529A(b)(7) and that his or her contributions of compensation do not exceed the

limit set forth in section 529A(b)(2)(B)

(ii).

The 2019 proposed regulations also

clarified that the poverty line in section

529A(b)(7)(B) is to be determined by

using the poverty guidelines updated periodically in the Federal Register by the

U.S. Department of Health and Human

Services under the authority of 42 U.S.C.

9902(2). Those guidelines vary based on

locality. Specifically, there are separate

guidelines for (1) the contiguous 48 states

and the District of Columbia, (2) Alaska,

and (3) Hawaii. Because the Treasury

Department and the IRS concluded that

the poverty guideline that most closely

reflects the employed designated beneficiary’s cost of living is the most relevant

for determining the contribution limit, the

2019 proposed regulations provided that

a designated beneficiary’s contribution

limit is to be determined using the poverty

guideline applicable in the state of the designated beneficiary’s residence.

Because section 529A(b)(2) provides

that rules similar to those set forth in section 408(d)(4) regarding the return of excess contributions to an individual retire-

Bulletin No. 2020–50

ment account or annuity apply to ABLE

accounts, the 2019 proposed regulations

provided that a qualified ABLE program

must return any contributions of the designated beneficiary’s compensation in excess of the limit in section 529A(b)(2)(B)

(ii) to the designated beneficiary.

The 2019 proposed regulations also

provided that it will be the sole responsibility of the designated beneficiary (or

the person acting on the designated beneficiary’s behalf) to identify and request the

return of any excess contribution of such

compensation income. Such returns of

excess compensation contributions must

be received by the employed designated

beneficiary on or before the due date (including extensions) of the designated beneficiary’s income tax return for the year in

which the excess compensation contributions were made. A failure to return excess

contributions within this time period will

result in the imposition on the designated

beneficiary of a 6 percent excise tax under

section 4973(a)(6) on the amount of excess compensation contributions.

Finally, in order to minimize administrative burdens for the designated beneficiary and the qualified ABLE program,

for purposes of ensuring that the limit on

contributions made under section 529A(b)

(2)(B)(ii) is not exceeded, the 2019 proposed regulations provided that a qualified

ABLE program may rely on self-certifications, made under penalties of perjury, of

the designated beneficiary or the person

acting on the designated beneficiary’s behalf.

Six comments were received in response to the 2019 proposed regulations.

No public hearing was requested or held.

Summary of Comments and

Explanation of Provisions

Approximately 200 comments were received in response to the 2015 proposed

regulations. These comments, along with

the six comments received in response to

the 2019 proposed regulations, are discussed in this section. The Treasury Department and the IRS, after consideration

of all of these comments and the changes

made to section 529A of the Code by the

PATH Act and the TCJA, adopt the 2015

and 2019 proposed regulations as amended by this Treasury decision. The comments are available for public inspection

at www.regulations.gov or on request.

These final regulations provide guidance on the requirements a program established and maintained by a State, or

agency or instrumentality thereof, must

satisfy to be considered a qualified ABLE

program under section 529A. They also

address the requirements for establishing

an ABLE account, for qualifying as an eligible individual and thus a qualified designated beneficiary of an ABLE account and

for contributions to an ABLE account, including the limitations on the amount and

investment of such contributions. These

final regulations also provide rules regarding changes in the designated beneficiary

of an ABLE account, and rollovers and

program-to-program transfers from one

ABLE account to another. In addition,

these final regulations provide guidance

on the gift and GST tax consequences of

contributions to an ABLE account, as well

as on the Federal income, gift, and estate

tax consequences of distributions from,

and changes in the designated beneficiary

of, an ABLE account. Finally, these final

regulations provide guidance on the recordkeeping and reporting requirements

of a qualified ABLE program.

1. Qualified ABLE Programs

A. Established and maintained by a State

Consistent with section 529A(b)(1),

which defines an ABLE program as a

program established and maintained

by a State, or agency or instrumentality thereof, the final regulations, like the

2015 proposed regulations, provide that

a program is established by a State, or its

agency or instrumentality, if the program

is initiated by State statute or regulation,

or by an act of a State official or agency

with the authority to act on behalf of the

State. A program is maintained by a State,

or its agency or instrumentality, if all the

terms and conditions of the program are

set by the State, or its agency or instrumentality, and the State, or its agency or

instrumentality, is actively involved on an

ongoing basis in the administration of the

program, including supervising decisions

relating to the investment of assets contributed to the program. The final regulations set forth factors that are relevant in

determining whether a State, or its agency

or instrumentality, is actively involved in

the administration of the program. Among

those factors is the nature and extent of

the State’s role in selecting and overseeing

private contractors contracted to provide

administrative or other services.

B. Community Development Financial

Institutions

The Treasury Department and the IRS

understand that many of the States will

have the entity that currently administers

its section 529 qualified tuition program

(on which section 529A was loosely modeled) also administer that State’s qualified

ABLE program. However, because of

greater administrative obligations, each

qualified ABLE program is likely to have

higher costs and lower revenue to offset

those costs than the same State’s qualified

tuition program. The 2015 proposed regulations suggested that, by contracting with

one or more Community Development

Financial Institutions (CDFIs)1 to perform

some or all of the duties involved in administering the qualified ABLE program,

a State might be able to reduce its costs,

and the cost to each owner of an ABLE

account, because the CDFI might be able

to obtain corporate or other grants to cover those costs. For example, a CDFI could

provide services to facilitate distributions,

collect and report social data, solicit grants

to defray the cost of administering the program, and apply for a financial assistance

award from the CDFI Fund, an entity established within the Treasury Department

to promote community development in

economically distressed communities.

Several commenters expressed concerns that the reference to CDFIs in the

2015 proposed regulations may lead qualified ABLE program administrators to

believe that CDFIs are the preferred, or

perhaps even the sole, entities with which

they may contract for administrative and

CDFIs (as defined in 12 U.S.C. 4702(5) and 12 CFR 1805.104) are certified by the CDFI Fund established under 12 U.S.C. 4703. The CDFI Program (authorized by 12 U.S.C. 4704-4707)

is administered by the Treasury Department. See the CDFI Fund’s website (www.cdfifund.gov) for more detailed information and a listing of CDFIs nationwide.

1

Bulletin No. 2020–50

1557

December 7, 2020

other services. These commenters asked

that the final regulations clarify that organizations other than CDFIs, such as

community banks, also may perform such

services. One commenter expressed concern that CFDIs will not be located where

people with disabilities and their families

would have easy access to make deposits

or withdrawals. The same commenter also

expressed concern that CFDIs would be

overwhelmed by screening and verifying

people associated with ABLE accounts.

The Treasury Department and the IRS

note that the final regulations, like the

2015 proposed regulations, do not prohibit States from contracting with private

contractors for various services. However, to increase clarity, the final regulations

specifically provide that, while a qualified

ABLE program may contract with a CDFI

for services, a qualified ABLE program

also may contract with other private contractors.

Some commenters requested that the

rules applicable to qualified ABLE programs be as consistent as possible with the

rules applicable to qualified tuition programs under section 529 in order to reduce

administrative burdens and costs. Numerous others requested that the process and

reporting should be made as simple and

streamlined as possible for the individuals

with a disability and their families. Others

requested as much uniformity as possible among the qualified ABLE programs,

to facilitate the movement of ABLE accounts from one program to another.

The Treasury Department and the IRS

are aware of the desirability of reducing

administrative burdens and costs. The final regulations therefore are consistent

with the rules applicable to qualified tuition programs, where appropriate. However, the final regulations allow certain

flexibility in the way each ABLE program

may implement the applicable requirements.

C. Consortia

Several commenters asked whether

qualified ABLE programs could join together to form a consortium for the purpose of offering broader investment choices, streamlined program administration,

and lower fees for account holders. The

Treasury Department and the IRS view

December 7, 2020

the States’ ability to streamline administration and lower costs as helpful in facilitating the establishment and maintenance

of qualified ABLE programs. Therefore,

the final regulations provide that a qualified ABLE program may be maintained by

two or more States or agencies or instrumentalities of a State. If a State or agency

or instrumentality of a State participates in

a consortium, the consortium’s program

is considered to be the program of each

member (State or agency or instrumentality of a State) of the consortium.

D. Residency requirement

As originally enacted, section 529A(b)

(1)(C) required a qualified ABLE program

to allow for the establishment of an ABLE

account only for a designated beneficiary

who is a resident of that State or of a contracting State. Consistent with the statute,

the 2015 proposed regulations required

that an ABLE account for a designated

beneficiary may be established only under

the qualified ABLE program of the State

in which that designated beneficiary is

a resident or with which the State of the

designated beneficiary’s residence has

contracted for the provision of ABLE accounts.

The 2015 proposed regulations provided that, if a State does not establish and

maintain a qualified ABLE program, it

could contract with another State to provide an ABLE program for its residents.

The 2015 proposed regulations defined

“contracting State” as a State without

a qualified ABLE program of its own,

which, in order to make ABLE accounts

available to its residents who are eligible

individuals, contracts with another State

that has a program.

Many commenters asked that the final

regulations clarify whether a State without an ABLE program could contract with

more than one State having an ABLE program. Another commenter asked whether

the Federal government would allow a

State without its own qualified ABLE program to decline to contract with another

State, and thus deprive its residents of access to ABLE accounts.

A few commenters were in support

of the residency requirement, but several

commenters expressed hope that Congress

would amend the ABLE Act to eliminate

1558

the residency requirement. Commenters

pointed out that the residency requirement

prevents an otherwise eligible US citizen

living abroad from having an ABLE account, and that the accounts of non-resident US citizens in a disability savings account program created under foreign law

would not receive the same tax-sheltered

benefits under US law as are accorded to

ABLE accounts. Others argued that allowing an eligible individual a choice of programs would ensure quality, competitive

fees, uniformity, and other benefits for the

eligible individual.

Several commenters suggested that the

final regulations permit a qualified ABLE

program to rely on a certification under

penalties of perjury by the designated

beneficiary regarding his or her state of

residence to establish that the residency

requirement has been satisfied.

After the Treasury Department and the

IRS received these comments, the PATH

Act repealed the residency requirement.

Therefore, the final regulations eliminate

all references to a residency requirement

and to a “contracting State.” A qualified

ABLE program may allow an ABLE account to be established for an eligible individual regardless of his or her residence

and, subject to the rules of the particular

qualified ABLE program, an eligible individual may be the designated beneficiary

of an ABLE account under the qualified

ABLE program of any State. However,

the Treasury Department and the IRS note

that the final regulations do not prohibit

a State from limiting its program to State

residents nor do they require a State to

establish or participate in an ABLE program.

2. ABLE Accounts

A. Establishment and signatory of an

ABLE account

Section 529A(e)(3) defines the term

“designated beneficiary” as the eligible

individual who established an ABLE account and is the owner of such account.

Consistent with section 529A(e)(3), the

2015 proposed regulations provided that

the designated beneficiary of an ABLE account is the individual who is the owner

of the ABLE account and who either established the account at a time when he or

Bulletin No. 2020–50

she was an eligible individual or who has

succeeded the original designated beneficiary. Because not every eligible individual may have the capacity or otherwise be

able to establish an ABLE account on his

or her own behalf, the 2015 proposed regulations provided that the ABLE account

may be established on behalf of the eligible individual by his or her agent under a

power of attorney or, if none, by a parent

or legal guardian of the eligible individual. Similarly, the 2015 proposed regulations also provided that if the designated

beneficiary is unable to, or chooses not

to, exercise signature authority over his

or her account, then signature authority

may be exercised by an agent under power of attorney or, if none, a parent or legal

guardian of the designated beneficiary.

The final regulations retain these provisions with modifications.

One commenter suggested that the final regulations clarify that “parent” refers

to the parent of an adult designated beneficiary, as well as the parent of a minor.

The final regulations do not adopt this

suggestion because it is not necessary. A

person’s status as a parent is not changed

by the child’s attainment of the age of majority. Rather, a person’s status as a parent

is determined by reference to a familial relationship that is not age dependent.

Numerous commenters asked that the

list of persons who may exercise signature authority over the ABLE account on

behalf of the designated beneficiary (signatories) be expanded to provide greater

flexibility and to avoid the need for the

court appointment of a conservator or

other legal representative, particularly in

cases in which the designated beneficiary

has no parent available to serve as signatory. One commenter suggested that there

is no reason to restrict the list to those acting under a power of attorney or to legal

guardians to the exclusion of custodians

and other types of fiduciaries permitted

under applicable state law. One commenter pointed out that an individual eligible

for an ABLE account may not have a parent, guardian, or agent under a power of

attorney who can and who is willing to

manage an account. Other commenters

suggested that the list of authorized signatories be expanded to include grandparents, siblings, non-family members, the

trustees of a trust for which the designat-

Bulletin No. 2020–50

ed beneficiary is the trust beneficiary, the

designated beneficiary’s representative

payee as recognized by the Social Security Administration (SSA), and custodians

or others designated by the designated

beneficiary. One commenter explained

that concerns about fraud or abuse by SSA

representative payees would be alleviated

by the Strengthening Protections for Social Security Beneficiaries Act of 2018,

Public Law 115-165 (132 Stat. 1257),

which increases the funding for the Representative Payee program and strengthens procedures for addressing misuse or

misappropriation of funds by SSA representative payees. Another commenter

suggested that someone other than the eligible individual be permitted to establish

the account if the eligible individual has

the legal capacity to do so but chooses to

have another person establish the account.

One commenter suggested that the law of

each individual State should be permitted

to govern who can be a signatory.

Some commenters suggested that the

designated beneficiary and/or the other

person with signature authority be permitted to name a successor, that the designated beneficiary be allowed to delegate

to others not only signature authority over

his or her account but also the ability to establish the ABLE account, that the designated beneficiary be able to choose more

than one person to exercise signature authority over his or her ABLE account, and

that the designated beneficiary be allowed

to designate a co-signer to serve concurrently with the designated beneficiary.

Commenters also requested that the final

regulations confirm that a parent with

signature authority over a minor child’s

ABLE account remains eligible to serve

after the designated beneficiary reaches

the age of majority.

Some commenters requested that the

ordering rule for determining the order in

which a person has the authority to be a

signatory be removed. These commenters were concerned that the ordering rule

would impose obligations on the qualified

ABLE programs to verify the absence of

any other person with higher priority who

was both willing and able to so serve.

These commenters suggested that a program be permitted to rely on the certification, under penalties of perjury, of an

individual seeking to exercise signature

1559

authority over an ABLE account regarding that individual’s authority to act on

behalf of the designated beneficiary.

On the other hand, one commenter

supported the provision in the 2015 proposed regulations regarding permissible

signatories. Another commenter questioned whether allowing the designated

beneficiary to designate another individual (who may otherwise lack independent

authority to act on behalf of the designated

beneficiary) to exercise signature authority would be consistent with the designated beneficiary’s ownership of the ABLE

account. The commenter also noted that

allowing greater flexibility in the choice

of authorized signatory could increase

program costs.

The Treasury Department and the IRS

recognize that there may be situations in

which an eligible individual with legal

capacity may want another person to establish, or to serve as the person with signature authority over, the ABLE account

for that eligible individual. Therefore, the

final regulations clarify that an eligible individual with legal capacity may delegate

these responsibilities to any other person.

Furthermore, the Treasury Department

and the IRS recognize that expanding the

categories of individuals who may serve

as signatories of an ABLE account of a

designated beneficiary who lacks legal

capacity affords less cumbersome alternatives to a court-appointed guardian in the

event the designated beneficiary has no

agent under a power of attorney or parent

to exercise signature authority. However,

the Treasury Department and the IRS also

recognize that expanding too widely the

universe of individuals who are allowed

to establish an ABLE account and serve as

the signatory of that ABLE account could

increase the risk of the impermissible establishment of multiple accounts for a single individual or of having the designated

beneficiary’s only ABLE account being

established and managed by a person who

might not be the most appropriate person

to serve in that capacity.

In an effort to find an appropriate balance between these possibly competing

concerns, the final regulations provide

an expanded hierarchy of persons who

may establish an ABLE account for an

individual or exercise signature authority over that individual’s ABLE account.

December 7, 2020

That hierarchy consists of the individual

selected by the eligible individual or the

eligible individual’s agent under a power

of attorney, conservator or legal guardian or conservator, the spouse, a parent,

a sibling, a grandparent, or a representative payee (whether an individual or

organization) appointed by the SSA, in

that order. It is noted that the representative payee is subject to all applicable

SSA rules.

Because each eligible individual is allowed to have only one ABLE account,

the Treasury Department and the IRS

concluded that the ordering rule is necessary to provide a clearer process for

determining who may establish the designated beneficiary’s only permissible

ABLE account. For this reason, the limitation and ordering rule prescribing the

persons who may establish the account

and/or serve as a signatory is retained

in the final regulations. To further facilitate the establishment of ABLE accounts

without imposing undue burden on the

program or the eligible individuals, the

final regulations permit a qualified ABLE

program to accept a certification by an individual, under penalties of perjury, that

he or she is authorized to establish the

ABLE account for the benefit of the eligible individual and that there is no other

willing and able person with a higher priority to do so.

The final regulations also allow a designated beneficiary with legal capacity to

remove and replace from time to time the

individual with signature authority over

that designated beneficiary’s ABLE account, and to name a successor signatory.

The final regulations also allow a person

with signature authority to name a successor signatory, consistent with the same

ordering rule, if the designated beneficiary

lacks the legal capacity to do so.

A few commenters suggested that more

than one person be allowed to serve as authorized co-signatories. The Treasury Department and the IRS understand that this

could provide administrative flexibility,

so the final regulations allow a qualified

ABLE program to permit co-signatories

as long as each co-signatory would satisfy

the ordering rule if the other had refused

to so serve.

As in the 2015 proposed regulations,

the final regulations provide that, be-

December 7, 2020

cause individuals with signature authority over an ABLE account would

be acting on behalf of the designated

beneficiary, references to actions of the

designated beneficiary, such as establishing or managing the ABLE account,

are deemed to include the actions of

any individual with signature authority

over the ABLE account. Further, the final regulations continue to provide that,

except for the designated beneficiary of

the ABLE account, any person with signature authority over the account may

neither have, nor acquire, a beneficial interest in the account during the lifetime

of the designated beneficiary, and must

administer the account for the benefit of

the designated beneficiary.

One commenter asked that the person

with signature authority over an ABLE

account be allowed to elect to establish

an ABLE account as a custodial account

under a Uniform Transfers to Minors Act

(UTMA) or the Uniform Gifts to Minors

Act (UGMA). The Treasury Department

and the IRS decline to adopt this suggestion. The ABLE Act mandates very

different rules governing ABLE accounts

than those governing UTMA and UGMA

accounts under State laws. As a result, the

Treasury Department and the IRS concluded it would not be possible to administer an ABLE account as mandated by

the ABLE Act if the account instead was

structured and administered as a UTMA

or UGMA account.

One commenter suggested that the final

regulations confirm that the provisions regarding authorized signatories do not limit

the ability of either the designated beneficiary or the person with signature authority to name other agents to, for instance,

obtain information, make electronic contributions and investment option changes,

authorize withdrawals, or have full joint

control. With regard to shared full joint

control, the final regulations do not adopt

the suggestion. The Treasury Department

and the IRS have concluded that this responsibility is properly the obligation of

the person(s) with signature authority over

the account and should not be delegable.

However, the final regulations do not prohibit the person(s) with signature authority from having co-signatories or from allowing sub-accounts, each with a different

signatory, for specific purposes.

1560

B. Limit on number of ABLE accounts of

a designated beneficiary

Section 529A(b)(1)(B) provides that

each eligible person may have only one

ABLE account. In addition, section

529A(c)(4) generally provides that, except with respect to rollovers, once an

ABLE account has been established for

a designated beneficiary, no account subsequently established for the same designated beneficiary may qualify as an ABLE

account. Accordingly, the 2015 proposed

regulations provided that, except in the

case of rollovers or program-to-program

transfers, a designated beneficiary would

be limited to one ABLE account at a time,

regardless of where located. The final regulations confirm that an eligible individual is not prohibited from establishing an

ABLE account merely because he or she

previously was the designated beneficiary

of an ABLE account that has been closed.

Consistent with the statutory provisions, the 2015 proposed regulations provided that, except with respect to rollovers

and program-to-program transfers, if an

ABLE account is established for a designated beneficiary who already has an

ABLE account in existence, the additional

account would not be treated as an ABLE

account. The 2015 proposed regulations

also provided that, if an additional account

is established and all contributions made

to the additional account are returned in

accordance with the rules applicable to

excess contributions, the additional account would be treated as never having

been established. The final regulations retain these provisions with one substantive

modification.

Section 103 of the ABLE Act generally exempts ABLE accounts from being

counted as a resource in determining the

designated beneficiary’s eligibility for,

or the amount of, certain public benefits. Thus, an ABLE account has both tax

and nontax benefits. Several commenters

raised concerns regarding the treatment

of additional accounts for purposes of

the designated beneficiary’s eligibility for

public benefits. Although a tax regulation

cannot govern provisions administered by

other government agencies, the final regulations appropriately provide guidance on

circumstances under which accounts are

treated as ABLE accounts.

Bulletin No. 2020–50

As a result of the PATH Act’s amendment to section 529A eliminating the requirement that the account be opened in

the State of the designated beneficiary’s

residence, the Treasury Department and

the IRS concluded that there is now an

increased risk that an additional account

could be opened under a different qualified ABLE program by a person with authority to establish an account without the

knowledge of either the eligible individual

or another person with authority to establish an account, thus increasing the risk

that the eligible individual thereby could

lose his or her eligibility for his or her

public benefits. The Treasury Department

and the IRS also concluded that it is within the scope of their regulatory authority

to attempt to prevent this potential harm

to the class of individuals that section

529A was enacted to benefit. Accordingly, the final regulations provide that, if an

additional account is established for the

eligible individual, the additional account

also is an ABLE account if either all contributions made to the additional account

are returned to the contributor(s) under

the same rules applicable to the return

of excess contributions, or the additional

account is transferred into the designated

beneficiary’s preexisting ABLE account

with any excess contributions and excess

aggregate contributions being returned to

the contributor(s). If neither of these conditions is satisfied on or before the due

date (including extensions) of the eligible

individual’s Federal income tax return for

the year in which the additional account

was established, the additional account

will cease to be an ABLE account immediately after that return due date.

Like the 2015 proposed regulations,

the final regulations provide that, at the

time when an individual seeks to establish

an ABLE account, the qualified ABLE

program must obtain verification from the

individual, signed under penalties of perjury, that the individual neither knows nor

has reason to know that the eligible individual for whom the ABLE account is being established has an existing ABLE account, other than an account the assets of

which will be rolled over or transferred to

the new account in a program-to-program

transfer. As noted previously, an eligible

individual is not prohibited from establishing an ABLE account merely because

Bulletin No. 2020–50

he or she was the designated beneficiary

of an ABLE account that has been closed.

Some commenters asked whether any

penalty would be imposed on a qualified

ABLE program that allows an individual

to establish an ABLE account on the basis

of such certification if the same eligible

individual in fact does have a preexisting

ABLE account. The Treasury Department and the IRS note that, in such an instance, no penalty would be imposed on

the qualified ABLE program as long as

the program has complied with all of the

requirements of the regulations, including

in obtaining the necessary certifications.

As noted earlier in this section, if all of

the contributions to the additional account

are returned timely, the additional account

will be treated as an ABLE account.

C. Definition of one account

Several commenters asked that the

final regulations allow for the establishment of one or more sub-accounts under

a master account of a single designated

beneficiary, and that the master account

(including all of its sub-accounts) would

constitute a single ABLE account. Each

sub-account would have a different individual with signature authority and

discretion to direct the investments in

that sub-account, provided that all of the

sub-accounts are treated as one account

for Federal tax and Federal means-tested

benefit purposes. These commenters expressed concern that, if qualified ABLE

programs are not given the discretion to

allow sub-accounts, fewer individuals

would be willing to contribute to a designated beneficiary’s account because they

would not have control over the manner

in which the contributions were invested

or used for the designated beneficiary. Another commenter expressed concern that

allowing sub-accounts could increase program costs.

The Treasury Department and the

IRS view the ability of a program to allow different individuals to establish and

have signature authority over separate

sub-accounts under one master account

as being contrary to the only-one-account

rule under section 529A. Therefore, the final regulations do not permit the kind of

arrangement described in the preceding

paragraph.

1561

However, the final regulations do

permit, but do not require, an ABLE

program to allow the establishment of

sub-accounts within the sole ABLE account of the designated beneficiary. Such

a sub-account could be authorized by

either the designated beneficiary or the

person with signature authority over the

ABLE account. The signatory over the

ABLE account has sole authority over

the investment of the ABLE account, but

the final regulations permit a program to

allow the creation and maintenance of

separate funds within that account, each

to be used for one or more types of expenditures and from which distributions

may be authorized by a person other than

the signatory. For example, a designated beneficiary may authorize a parent to

open and administer the ABLE account,

but also may authorize the maintenance

of a particular sub-account to be used for

the purchase of the designated beneficiary’s groceries and entertainment expenses on an ongoing basis, and from which

the designated beneficiary (or a named

sibling, for example) may make distributions for that purpose. Thus, different

persons may be authorized to make distributions from different sub-accounts.

All sub-accounts are aggregated as part

of the one ABLE account for all other

purposes, including, without limitation,

the contributions limits, limit on the

number of permissible investment direction changes, tax provisions, and reporting requirements.

D. Eligible individual

At the time an ABLE account is established, the designated beneficiary of the

account must provide evidence that he or

she is an “eligible individual.” Consistent

with section 529A(e)(1), the 2015 proposed regulations provided that an individual is an eligible individual for a taxable year if he or she is either (i) entitled

during that year to benefits based on blindness or disability under title II or XVI of

the Social Security Act, provided that such

blindness or disability occurred before the

date on which the individual attained age

26, or (ii) the subject of a disability certification filed with the Secretary of the

Treasury or his delegate (Secretary) for

that year.

December 7, 2020

The final regulations, like the 2015

proposed regulations, provide that the determination that an individual is an eligible individual is made each taxable year

and applies for the entire year. The final

regulations, like the 2015 proposed regulations, provide that a qualified ABLE

program must specify the documentation

that an individual must furnish, both at the

time an account is established and thereafter, to ensure that the designated beneficiary of the ABLE account is, and continues

to be, an eligible individual.

A few commenters requested clarification as to whether an ABLE account may

be established for an individual with a

mental illness. The Treasury Department

and the IRS note that the statute does not

differentiate between a mental or physical

condition, and the final regulations retain

the language from § 1.529A-2(e)(1)(i)(A)

of the 2015 proposed regulations that provides that a mental impairment can meet

the requirements for a disability certification.

One commenter asked whether a qualified ABLE program could narrow the

types of physical or mental impairments

that would satisfy the requirements to be

an eligible individual to specific disabilities, such as developmental disabilities.

The Treasury Department and the IRS

concluded that the statute does not permit

a qualified ABLE program to discriminate

on the basis of the nature of the disability,

and that Congress intended that all individuals meeting the definition of an eligible individual under section 529A have

access to an ABLE account, regardless

of the nature of the individual’s disability. Therefore, a qualified ABLE program

may not narrow the definition of an eligible individual by limiting the types of disabilities that can be considered.

The Treasury Department and the IRS

considered whether to retain the term “entitled” for purposes of the definition of an

eligible individual under section 529A(e)

(1)(A). To clarify the definition of “eligible individual” under section 529A(e)(1)

(A) and its use of the word “entitled”, the

final regulations retain the term “entitled”

as provided in the statute, interpret it to

include eligibility for SSI benefits, and

define the term “eligible individual” to include an individual who either is receiving

SSI benefits based on blindness or a dis-

December 7, 2020

ability that occurred before age 26 or is a

person whose entitlement to such benefits

has been suspended due solely to excess

income or resources.

A few commenters suggested that

establishing an individual’s eligibility

should be the obligation of the Treasury

Department or the SSA and should not be

a burden shifted to the qualified ABLE

programs. In addition, one commenter

requested that a defined term, “qualified

proxy,” be added to the regulations to clarify the procedures for establishing eligibility based on the individual’s entitlement to

SSI or SSDI benefits. Such a certification

would be signed under penalties of perjury by the designated beneficiary or a

“qualified proxy” who would certify as to

the beneficiary’s entitlement to these benefits during the applicable tax year and as

to the onset of blindness or disability prior

to age 26. The commenter also suggested

that the certification either be accompanied by a copy of a letter from the SSA

confirming eligibility for such benefits

or reference the existence of such a letter

and specifying the date of that letter. The

commenter suggested allowing a qualified

ABLE program to rely on an SSA certification for purposes of determining whether an individual is an eligible individual

based on blindness or disability under title

II or XVI of the Social Security Act. Other commenters recommended that the applicant be asked to certify the date of the

most recent SSA benefit entitlement letter

or to show some easily available proof,

which the commenters suggested could be

verified through electronic data matches

between the IRS and the SSA.

The Treasury Department and the IRS

agree that a certification-based process

regarding eligibility by reason of entitlement to benefits based on blindness or disability under title II or XVI of the Social

Security Act is the simplest way to facilitate the establishment of ABLE accounts

without unduly burdening individuals, the

program, the IRS, or the SSA. Additionally, the Treasury Department and the IRS

concluded that it would be in everyone’s

best interests to permit an eligible individual to establish an ABLE account without

experiencing the delay that would result

from having to wait for the acceptance or

approval of a certification by a government agency. Therefore, consistent with

1562

Notice 2015-81, the final regulations provide that a qualified ABLE program may

establish entitlement with a certification,

under penalties of perjury, by the individual establishing the ABLE account that

the designated beneficiary of that account

is eligible for benefits under title II or XVI

of the Social Security Act and that the

blindness or disability that qualifies the

designated beneficiary for those benefits

occurred before the date on which he or

she attained age 26.

The other method of satisfying the

definition of an eligible individual is by

obtaining a disability certification and filing it with the Secretary. Consistent with

section 529A(e)(2)(A), the 2015 proposed

regulations provided that a disability certification is a certification deemed sufficient

by the Secretary, signed under penalties

of perjury, that an individual has a severe

physical or mental impairment that can be

expected to result in death or that has lasted (or can be expected to last) for a continuous period of not less than 12 months,

or that the individual is blind, and that the

blindness or impairment occurred before

age 26, which certification is accompanied

by a copy of a physician’s diagnosis relating to the blindness or impairment. One

commenter asked that the final regulations

clarify that a disability certification that

meets the requirements of the final regulations will be “deemed sufficient by the

Secretary.” The Treasury Department and

the IRS agree, and the final regulations

affirm that a certification that meets the

requirements of a disability certification

as set forth in the final regulations is sufficient to establish the requisite level of

physical or mental impairment described

in § 1.529A-2(e)(2).

The final regulations, like the 2015

proposed regulations, also provide that

a disability certification is deemed to be

filed with the Secretary once the qualified

ABLE program has received the disability certification or a disability certification

is deemed to have been received under

the rules of the qualified ABLE program,

about which receipt the qualified ABLE

program must file information with the

IRS.

As was stated in Notice 2015-81, numerous commenters, including States and

potential qualified ABLE program administrators, expressed concerns about their

Bulletin No. 2020–50

responsibilities and potential liabilities for

receiving and safeguarding medical information contained in a signed diagnosis,

particularly because they do not anticipate

having the expertise or ability to evaluate

that medical information. The commenters emphasized that qualified ABLE programs would incur unmanageable costs

and burdens in trying to comply with applicable laws imposing system and other

requirements on those in possession of

medical records, as well as in implementing systems to receive and store paper

documentation. The commenters also expressed the concern that, if these costs and

burdens are not minimized, some States

might not proceed with the implementation of qualified ABLE programs for their

residents. The commenters recommended

that a qualified ABLE program be permitted to establish an ABLE account on the

basis of a certification by the person establishing the ABLE account, signed under penalties of perjury, that the individual

who is to be the designated beneficiary

of the account has a qualifying condition

and otherwise satisfies the definition of an

eligible individual, and that a diagnosis

signed by a physician regarding the relevant impairment or impairments has been

obtained. To facilitate the establishment of

qualified ABLE programs by the States,

commenters requested interim guidance

addressing the issue.

After consideration of these comments,

the Treasury Department and the IRS issued Notice 2015-81, stating that a certification under penalties of perjury that the

individual (or the individual’s agent under

a power of attorney or legal guardian of

the individual) has a signed physician’s diagnosis, and that the signed diagnosis will

be retained and provided to the qualified

ABLE program or the IRS upon request,

would be adequate under the final regulations to satisfy the requirements pertaining

to the filing of a disability certification to

establish eligibility for an ABLE account.

One commenter stated that the degree

of flexibility given to each state with respect to the specific documentation that

will need to be filed to establish proof

of eligibility will place an undue burden

on the process and will create confusion

within the disability community. This

commenter and others asked that the IRS

provide standard forms to document eligi-

Bulletin No. 2020–50

bility. Another commenter recommended

that the final regulations establish a maximum amount of required information and

documentation to make it easier for those

attempting to establish an ABLE account

to ensure they have everything required.

Other commenters asked that qualified

ABLE program administrators be required

to collect only information concerning the

basis of eligibility and a statement that the

blindness or disability occurred before

age 26. These commenters recommended

the use of an application with “check-off”

boxes allowing the applicant to indicate

whether his or her eligibility for an ABLE

account is based on SSI eligibility, SSDI

eligibility, or the filing of a disability certification. The commenters would require

the eligible individual to maintain records

and documentation supporting the category of eligibility indicated on the application form, and to sign the application form

under penalties of perjury.

The Treasury Department and the IRS

understand and appreciate the benefits of a

consistent and predictable disability documentation process, while recognizing that

a qualified ABLE program should be accorded the flexibility to meet its own particular needs. Therefore, consistent with

Notice 2015-81, the Treasury Department

and the IRS added a safe harbor to the final regulations. The safe harbor provides

that a qualified ABLE program may establish that an individual is an eligible individual if the individual (or the person with

authority to establish that individual’s account) certifies under penalties of perjury:

(i) the basis for the individual’s status as an

eligible individual under § 1.529A-1(b)(8)

(entitlement for benefits based on blindness or disability under title II or XVI of

the Social Security Act, or a disability certification); (ii) that the individual is blind

or has a medically determinable physical

or mental impairment as described in the

final regulations; (iii) that such blindness

or disability occurred before the date on

which the individual attained age 26 (and,

for this purpose, an individual is deemed

to attain age 26 on his or her 26th birthday); (iv) if the basis of the individual’s

eligibility is a disability certification, that

the individual has obtained and will retain

a copy of the written diagnosis relating to

the disability, accompanied by the name

and address of the diagnosing physician

1563

and the date of the written diagnosis; (v)

that the individual has provided the applicable diagnostic code from those listed on

Form 5498-QA that applies with respect

to the designated beneficiary’s disability; (vi) that the person establishing the

account is the individual who will be the

designated beneficiary of the account or is

the person authorized under § 1.529A-2(c)

(1)(i) to establish the account; and (vi) if

required by the qualified ABLE program,

that the individual has provided the information from a physician as to the categorization of the disability that may be used

to determine, under the particular State’s

program, the appropriate frequency of required recertifications.

A few commenters, observing that

persons with developmental disabilities

are often diagnosed by licensed psychologists, clinical therapists, or certified

vocational rehabilitation counselors, requested that the final regulations authorize such professionals to sign the individual’s diagnosis. While the Treasury

Department and the IRS understand the

commenters’ concerns, the final regulations do not incorporate these suggestions. Section 529A(e)(2)(A)(ii) requires

the individual’s diagnosis to be signed

by a physician meeting the criteria of

section 1861(r)(1) of the Social Security

Act, which means a doctor of medicine or

osteopathy, a doctor of dental surgery or

dental medicine, and, for some purposes,

a doctor of podiatric medicine, a doctor

of optometry, or a chiropractor.

In the case of a program-to-program

transfer, several commenters requested

that the final regulations allow the recipient qualified ABLE program to assume at

the time of the transfer (in reliance on the

obligations of the transferor program) that

the designated beneficiary of the recipient

ABLE account is an eligible individual.

The final regulations do not incorporate

this suggestion because the Treasury Department and the IRS concluded that the

obligation of a qualified ABLE program to

establish an account only for an eligible

individual is not delegable. Thus, the same

requirements for establishing an ABLE

account apply, regardless of whether the

account is funded initially with a program-to-program transfer or otherwise,

including permitting a qualified ABLE

program to allow the designated benefi-

December 7, 2020

ciary to certify that he or she is an eligible

individual.

E. Disability standard

As directed in the ABLE Act, the Treasury Department and the IRS consulted

with the Commissioner of Social Security

in developing the medical standards relating to disability certifications and determinations of disability. The final regulations,

like the 2015 proposed regulations, provide that a person signing (under penalties

of perjury) a disability certification with

respect to an individual is certifying that

such individual has a medically determinable physical or mental impairment that

results in marked and severe functional

limitations and that can be expected to result in death or has lasted or can be expected to last for a continuous period of not

less than 12 months, or is blind. The disability certification also is a certification

that such blindness or disability occurred

before the date on which the individual attained age 26.

Consistent with section 529A(e)(2)(A),

the 2015 proposed regulations defined the

phrase “marked and severe functional

limitations” as the standard of disability in the Social Security Act for children

claiming benefits under the SSI program

based on disability, but without regard to

the age of the individual. Citing 20 CFR

416.906, the 2015 proposed regulations

clarified that this definition refers to a level of severity of an impairment that meets,

medically equals, or functionally equals

the listings in the Listing of Impairments

in appendix 1 of subpart P of 20 CFR part

404. An impairment is medically equivalent to a listing if it is at least equal in

severity and duration to the severity and

duration of any listing. An impairment

that does not meet or medically equal

any listing may result in limitations that

functionally equal the listings if it results

in marked limitations in two domains of

functioning or an extreme limitation in

one domain of functioning, as explained

in 20 CFR 416.926a. Several commenters

commended the proposed regulation’s use

of this disability standard, saying that it

achieves the intended statutory result.

One commenter questioned whether physicians would accurately interpret

and apply the standard, and asked wheth-

December 7, 2020

er training for physicians would be provided. The Treasury Department and the

IRS note that, while the physician is to

provide the diagnosis, it is the designated

beneficiary or other person establishing

the ABLE account who is responsible for

certifying satisfaction of the standard of

medical disability, so no special training

of physicians by the SSA, the Treasury

Department, or the IRS is contemplated.

A few commenters noted that the definition of “marked and severe functional limitations” under 20 CFR 416.906

includes the statement that “if you file a

new application for benefits and you are

engaging in substantial gainful activity,

we will not consider you disabled.” These

commenters questioned whether that

statement suggests that a person is disqualified from having an ABLE account if

he or she is gainfully employed. The Treasury Department and the IRS agree that

the citation to the SSI regulation, without any further clarification, may lead to

confusion. Therefore, the final regulations

adopt the proposed regulation’s definition

of “marked and severe functional limitations,” but also provide that the standard

of disability under section 529A is applied

without regard to either the individual’s

age or whether the individual is engaged

in substantial gainful activity.

Some commenters requested that the

final regulations provide that a person

who does not meet the definition of an

eligible individual before attaining age

26, but who subsequently will develop

blindness or a disability of sufficient severity to satisfy that definition as a result

of either a genetic disorder present at birth

or a condition that is diagnosed before attaining age 26 may qualify as an eligible

individual. One commenter asserted that

such an individual should be allowed to

prepare for a known future disability by

establishing an ABLE account. The Treasury Department and the IRS also have

considered whether such an individual

should be able to qualify as an eligible

individual once the disorder or condition

causes blindness or a disability of sufficient severity. While sympathetic to this

request, the Treasury Department and the

IRS concluded that the statutory requirement that the blindness or disability have

“occurred” before age 26 is not consistent

with the broader interpretations requested

1564

or considered. There is no indication in the

statute or legislative history of the ABLE

Act that Congress intended to permit what

could be a significant expansion of the

definition of an eligible individual by including a person who may never develop

the disability or whose condition is cured

or significantly alleviated by subsequent

medical discoveries. Accordingly, the final regulations do not incorporate this

suggested change.

The 2015 proposed regulations provided that a condition listed in the “List of

Compassionate Allowances Conditions”

maintained by the SSA (currently at www.

socialsecurity.gov/compassionateallowances/conditions.htm) would be deemed

to meet the requirements of a condition

sufficient for a disability certification

without a physician’s diagnosis if the

condition was present before the date on

which the individual attained age 26. In

the preamble to the 2015 proposed regulations, the Treasury Department and the

IRS requested comments on other conditions that might also be deemed sufficient

for a disability certification without the

need of a physician’s diagnosis.

Some commenters proposed that a

few additional specific conditions should

be treated similarly as qualifying disabilities. One commenter suggested that

three additional types of spinal muscular

atrophy, a permanent disability that can

occur after age 26, should so qualify, in

addition to the two types already on the

List of Compassionate Allowances Conditions. Another commenter suggested that

polymicrogyria qualifies under certain

conditions, while yet another commenter

pointed out that autism is typically a lifelong condition. One commenter suggested

that the regulations incorporate what was

described as the “non-exhaustive list of

impairments presumed to be disabilities

under the updated EEOC Title I regulations of the Americans with Disabilities

Act (76 FR 16978).” While sympathetic

to the suggestions of these commenters,

the Treasury Department and the IRS are

not qualified to make the kind of decisions

that are made by the SSA when compiling the List of Compassionate Allowances

Conditions. For that reason, the final regulations adopt the provision in the 2015

proposed regulations without change. The

Treasury Department and the IRS note

Bulletin No. 2020–50

that the SSA periodically updates the List

of Compassionate Allowances Conditions, so these commenters may want to

consider approaching the SSA with their

requests. The Office of Disability Policy

maintains a website and e-mail box for

soliciting and evaluating compassionate

allowance condition submissions from the

public at https://www.ssa.gov/compassionateallowances/submit_potential_cal.

html.

F. Recertification

The 2015 proposed regulations provided that a qualified ABLE program could

choose different methods of ensuring a

designated beneficiary’s status as an eligible individual. That might include, for example, imposing different periodic recertification requirements for different types

of impairments, taking into consideration

whether an impairment is incurable and

the likelihood that a cure may be found.

The 2015 proposed regulations explained

that, while a qualified ABLE program

generally must require an annual recertification that the designated beneficiary

continues to satisfy the definition of an

eligible individual, it may deem an annual recertification to have been provided in

appropriate circumstances. For example,

a qualified ABLE program could deem

a one-time certification by an individual

that he or she has a permanent disability as

meeting the annual recertification requirement in subsequent years. In other cases, a

program could require the same evidence

that is required of an initial disability certification, or could incorporate some other

method of ensuring that the designated

beneficiary continuously qualifies as an

eligible individual.

While most commenters supported

the flexibility accorded qualified ABLE

programs to impose different periodic

recertification requirements for different

types of impairments, several commenters recommended that there be as much

uniformity among qualified ABLE programs as possible. Some of these commenters asked that the final regulations

identify those illnesses or disabilities for

which there is no known cure and then

excuse them from any recertification requirement. Many of these commenters

requested that the form used to establish

Bulletin No. 2020–50

the ABLE account contain a box for the

diagnosing physician to check if the disability is unlikely to change within five

years, and require recertification only every five years thereafter. Other commenters suggested that there be a uniform

certification form with which a physician

could certify that an individual’s impairment is unlikely to improve, in which

case the certification would be effective

for a certain number of years (for example, 5 years or longer), after which time

a new certification form could be filed

for an additional number of years. Some

commenters suggested that the certification of a “permanent,” “incurable,” or

“severe and sustained” disability should

be effective for a longer period of time

than the certification of a “moderate” or

“curable” disability, or that the disability be classified as “severe”, “moderate”,

or “mild” with a different recertification

frequency for each, and that those classifications would be certified when the account is established. Some commenters

suggested that there be a presumption of

continued eligibility until the designated

beneficiary notifies the qualified ABLE

program of his or her ineligibility. Other

commenters suggested that recertification be waived as long as the designated

beneficiary’s SSDI or SSI benefits qualify him or her for an ABLE account, while

still other commenters requested that the

annual recertification requirement be

waived for anyone with an incurable illness or disability. One commenter suggested that the IRS partner with the SSA

to maintain lists of recertification criteria.

Other commenters pointed out that recertification may be too burdensome.

The final regulations retain the rule set

forth in the 2015 proposed regulations

that a determination of eligibility must be

made annually unless the qualified ABLE

program adopts a different method of ensuring a designated beneficiary’s continuing status as an eligible individual. This

gives each qualified ABLE program broad

discretion to devise its own recertification

methods. This provision is broad enough

to permit many of the approaches suggested by commenters, other than the suggestions regarding the elimination of the

recertification requirement entirely. The

final regulations specify that a permissible

method may include a certification by the

1565

designated beneficiary under penalties of

perjury.

The final regulations, like the 2015 proposed regulations, also provide that even

if a qualified ABLE program imposes an

enforceable obligation on the designated

beneficiary or other person with signature

authority over the ABLE account to report

promptly any changes in the designated

beneficiary’s condition that would disqualify the designated beneficiary as an

eligible individual, the qualified ABLE

program may provide that a certification

is valid until the end of the taxable year in

which the change in the designated beneficiary’s condition occurred. One commenter asked for clarification that a qualified

ABLE program that adopts this approach

will not be deemed to be noncompliant

with the annual recertification requirement for any year in which the designated

beneficiary is no longer an eligible individual but fails to report a change in status to the program. The final regulations

confirm that a qualified ABLE program

that is compliant with the rules regarding

recertification will not cease to be a qualified ABLE program if the designated beneficiary fails to report a change in status.

G. Change in eligible individual status

The Treasury Department and the IRS

recognize that there will be instances

when an individual’s impairment abates

to the point that the individual no longer

qualifies as an eligible individual, either

temporarily or permanently. The 2015

proposed regulations provided that an

existing ABLE account will remain the

ABLE account of the designated beneficiary even during years in which the designated beneficiary does not qualify as an

eligible individual. However, the 2015

proposed regulations also provided that,

beginning with the year immediately following the year in which that qualification

ceases, no additional contributions may be

made into that ABLE account. The final

regulations preserve these rules. However, the 2015 proposed regulations provided that, beginning with that same year,

no amounts incurred would constitute a

qualified disability expense, regardless of

the nature of that expense. As explained

in the following paragraphs, the final regulations continue to provide that, in this

December 7, 2020

event, no expense will constitute a qualified disability expense, but further provide

that this rule applies at all times when the

designated beneficiary does not qualify as

an eligible individual, including during

the portion of the year remaining after that

eligibility has been lost.

One commenter asked whether the

ABLE account could be used to pay for

medical treatments that may be necessary

to sustain the designated beneficiary’s

improved condition. Another commenter asked whether distributions from the

ABLE account to pay for medically necessary procedures of a designated beneficiary who is not an eligible individual are

subject to tax. One commenter suggested

that an ABLE account should be closed if

the designated beneficiary of the account

no longer has the qualifying blindness or

disability, and that the designated beneficiary then should be subjected to long

term capital gains tax on the income portion of any remaining funds in that ABLE

account, possibly payable over more than

a single year.

A condition in remission subsequently

can become active, so it is possible that

the designated beneficiary could again satisfy the definition of an eligible individual

in the future. In addition, even though a

designated beneficiary may fail to qualify as an eligible individual for purposes

of section 529A, that person still may be

relying on public benefits that could be

lost if the ABLE account were to lose its

special exclusion under section 103 of the

ABLE Act. For these reasons, the Treasury Department and the IRS concluded

that it is appropriate to preserve the ABLE

account for the benefit of the designated beneficiary, even after the designated

beneficiary fails to qualify as an eligible

individual, in case he or she once again

becomes an eligible individual. Therefore,

like the 2015 proposed regulations, the final regulations provide that, for any year

during which a designated beneficiary no

longer satisfies the definition of an eligible individual, his or her ABLE account

remains an ABLE account, to which all

of the non-tax provisions of the ABLE

Act continue to apply, and to which all

of the tax provisions continue to apply

except as otherwise provided with regard

to contributions and the tax treatment of

distributions. The ABLE account does not

December 7, 2020

have to terminate, and there is no deemed

distribution of the account balance for tax

purposes. Beginning on the first day of the

designated beneficiary’s first taxable year

following the year in which the designated beneficiary no longer satisfies the definition of an eligible individual, no contributions to the ABLE account may be

accepted by the qualified ABLE program.

In addition, expenses will not be qualified

disability expenses if they are incurred at

a time when a designated beneficiary is

neither an individual with a disability nor

blind within the meaning of § 1.529A-1(b)

(8)(i) or § 1.529A-2(e)(1)(i), even if the

individual remains an eligible individual

through the end of the year in which the

individual ceases to be disabled or blind.

Therefore, although distributions still may

be made from an ABLE account to pay the

expenses of the designated beneficiary incurred during periods when the designated

beneficiary is no longer blind or disabled,

none of those expenses are qualified disability expenses and thus the earnings included in those distributions are includible in the gross income of the designated

beneficiary. If the designated beneficiary

subsequently requalifies as an eligible individual, contributions to the designated

beneficiary’s ABLE account again will be

allowed, subject to the annual contribution

limit under section 529A(b)(2)(B) and the

aggregate contribution limit under section

529A(b)(6), and expenses again may constitute qualified disability expenses.

3. Contributions to an ABLE Account

A. Source and nature

Like the 2015 proposed regulations,

the final regulations provide that any person may make contributions to an ABLE

account, subject to annual and aggregate

contribution limits. One commenter suggested that the final regulations explicitly

define the word “person” with reference

to the definition of “person” under section 7701. Another commenter requested

clarification that contributors to an ABLE

account may include charitable organizations described in section 501(c)(3) of

the Code, as well as special needs trusts

as described in 42 U.S.C. 1396p(d)(4) that

can be excluded from a person’s assets for

purposes of eligibility for certain Medic-

1566

aid benefits. The Treasury Department and

the IRS note that the definition of “person”

in section 7701 applies throughout the

Code unless explicitly provided otherwise

or where manifestly incompatible with

the statutory intent and is thus applicable

in this context. The Treasury Department

and the IRS also note that a “person” under section 7701 includes both trusts and

tax-exempt organizations. Accordingly, an

express statement in the regulatory text is

not necessary to achieve the commenter’s

purpose. Therefore, the final regulations

do not adopt these comments.

Like the 2015 proposed regulations,

the final regulations provide that all contributions to an ABLE account must be

made in cash, and that a qualified ABLE

program may accept contributions in the

form of cash, check, money order, credit card payment, electronic transfer, or

other similar method of payment. Many

commenters urged that the final regulations continue to allow a qualified ABLE

program to accept contributions by credit

card, and the final regulations do so. One

commenter asked that the final regulations

clarify that a qualified ABLE program

may accept payroll deductions. The final

regulations accordingly clarify that cash

contributions may be made as after-tax

payroll deductions.

One commenter asked that the final

regulations clarify that a qualified ABLE

program may accept contributions directly from a corporation, and that employers

may contribute to the ABLE accounts of

their employees through matching contribution programs. The Treasury Department and the IRS note that the final

regulations provide that a qualified ABLE

program may accept contributions in the

form of after-tax payroll deductions and

do not prohibit other forms of contributions from a corporation or employer.

However, it is important to remember

that contributions made by an employer

to the ABLE account of its employee or

of a family member of the employee are

subject to the rules governing the taxation

of compensation. The final regulations

also clarify that the rules concerning the

tax treatment of contributions to an ABLE

account apply only for purposes of section 529A. No inference is intended with

respect to the tax treatment of amounts

contributed to ABLE accounts for other

Bulletin No. 2020–50

purposes of the Code, such as the tax treatment of compensation.

Several commenters requested that

certain contributions be allowed without

regard to other applicable tax provisions.

For example, one commenter suggested

that a parent be allowed to withdraw assets from his or her IRA and contribute the

assets to his or her child’s ABLE account

free of income tax on the IRA withdrawal.

Although there is no limit on the permissible sources of contributions to an ABLE

account, the regulatory authority of the

Treasury Department and the IRS does not

extend to negating the tax consequences

that otherwise are applicable to amounts

used to make contributions.

B. Annual and aggregate contribution

limits

Consistent with section 529A(b)(2)

(B), the 2015 proposed regulations provided that the total amount of contributions to an ABLE account during the

designated beneficiary’s taxable year

(excluding rollovers and program-to-program transfers) could not exceed the

section 2503(b) gift tax annual exclusion amount ($14,000 in 2015, 2016,

and 2017 and $15,000 in 2018, 2019,

and 2020) (annual contribution limit).

Although section 529A was effective for

taxable year 2015, no qualified ABLE

programs were operational in 2015.

Several commenters asked that the final

regulations allow a “make-up” contribution for 2015 to be made in 2016, so

that, for 2016 only, the total amount that

may be contributed to an ABLE account

is $28,000. Setting the 2016 contribution

limit at $28,000, these commenters said,

would effectuate Congressional intent

to enable eligible individuals to benefit

from ABLE accounts beginning in 2015.

The final regulations do not incorporate

this suggestion as the statute is explicit

with regard to the annual contribution limit and does not permit a carryover. Section

529A(b)(2) states that, except in the case

of a rollover, a qualified ABLE program

may not accept a contribution to an ABLE

account that would result in aggregate

contributions from all contributors to the

account for the taxable year exceeding the

Federal gift tax exclusion amount in effect

under section 2503(b) for that year.

Bulletin No. 2020–50

One commenter asked that the final

regulations expressly state that a change

in the designated beneficiary of an ABLE

account to a member of the family of the

designated beneficiary effectuated without

a rollover or program-to-program transfer

is not a contribution subject to the annual

contribution limit. The final regulations

adopt this suggestion. The Treasury Department and the IRS view such a change

of the designated beneficiary as the equivalent of a rollover or program-to-program

transfer. Therefore, the annual contribution limit does not apply as long as the

successor designated beneficiary is both

an eligible individual and a sibling, stepsibling, or half-sibling of the designated

beneficiary (collectively referred to as siblings).

Section 529A(b)(2) provides that, for

purposes of applying the annual contribution limit imposed by that section, rules

similar to the rules of section 408(d)(4),

determined without regard to subparagraph (B) thereof, apply. Section 408(d)

(4) generally provides that a distribution

from an IRA is not taxable if it is the return of a contribution made during the taxable year, provided that the return of the

contribution is received by the IRA owner

on or before the due date (including extensions) of his or her income tax return

for that year, and if the amount returned

includes the earnings on the amount of

the contribution. However, the earnings

portion of the distribution is includible in

the recipient’s gross income for the year in

which the contribution was made.

One commenter suggested that the

reference to section 408(d)(4) should be

construed to calculate both the annual

contribution limit and the aggregate contribution limit by not counting toward either limit the amount of each contribution

withdrawn during that same year for qualified disability expenses. Under this view,

total permissible contributions during any

year would equal the sum of the annual

contribution limit (currently $15,000) and

the total withdrawals during that year for

qualified disability expenses, thus giving the designated beneficiary the ability

to save amounts in the ABLE account in

excess of what is needed for current expenses.

The final regulations do not incorporate this suggestion. The Treasury Depart-

1567

ment and the IRS concluded that the mere

reference in section 529A(b)(2) to section

408(d)(4) cannot be read to increase the

permissible annual contributions by the

amounts distributed out of the ABLE account in the same year. The reference to

section 408(d)(4) provides a mechanism

for correcting the receipt of a contribution in excess of the annual contribution

limit. Under section 4973(h)(2), an excess

annual contribution timely returned in

accordance with the reference to section

408(d)(4) in section 529A(b)(2) is treated

as an amount not contributed, and therefore avoids the imposition of a six percent

excise tax under section 4973 on excess

annual contributions that are not timely

returned.

One commenter suggested that the final regulations should allow an individual’s benefits under the SSI program to be

directly deposited or otherwise transferred

to the ABLE account of which the individual is the designated beneficiary, without

being counted against the annual contribution limit. Another commenter suggested

that, in applying the annual contribution

limit, the final regulations should disregard the amount of certain other items deposited into an ABLE account, such as the

payment of retroactive SSDI benefits, the

proceeds from a personal injury lawsuit,

or a family inheritance. Noting that large

sums of money received as a result of a

lawsuit settlement or inheritance are often

placed in special needs trusts, the commenter also recommended that the final

regulations permit transfers from a special

needs trust to an ABLE account. Another

commenter asked that the final regulations

not treat any earned income of the designated beneficiary that is deposited into

his or her ABLE account as a contribution

subject to the annual contribution limit

because such a transfer is not treated as a

completed gift for Federal tax purposes.

The final regulations do not incorporate these suggestions. The statute does

not differentiate between contributions

based on their nature or source. The Treasury Department and the IRS concluded

that the statute is properly interpreted to

include all amounts contributed to an

ABLE account for the benefit of the designated beneficiary (other than a rollover,

program-to-program transfer, or pursuant

to a change of designated beneficiary) as

December 7, 2020

a contribution subject to the annual limit,

regardless of the source of the funds contributed. The Treasury Department and the

IRS note that section 529A does not prevent a transfer from a special needs trust

to an ABLE account subject to the annual

and aggregate contribution limits of sections 529A(b)(2)(B) and 529A(b)(6).

The 2015 proposed regulations provided that a qualified ABLE program is required to provide adequate safeguards to

prevent aggregate contributions on behalf

of a designated beneficiary in excess of

the limit established by the State on contributions to its qualified tuition program

under section 529(b)(6) (aggregate contribution limit). The 2015 proposed regulations included a safe harbor providing

that a qualified ABLE program satisfies

the aggregate contribution limit requirement if it refuses to accept any additional

contribution to an ABLE account once the

balance in the account reaches that limit.

Once the account balance falls below the

aggregate contribution limit, additional

contributions again may be accepted up to

the aggregate contribution limit. The Treasury Department and the IRS concluded

that this safe harbor and the permissible

recommencement of contributions is appropriate based on the nature and purposes of a qualified ABLE program.

Most commenters were supportive of

the proposed safe harbor, which is the

same safe harbor in the proposed regulations addressing the cumulative limit on

qualified tuition accounts under section

529. Some commenters also noted that

the safe harbor would be consistent with

the way most States administer their 529

programs, which would lower administrative costs. One commenter observed that

the safe harbor avoids the disparities inherent in focusing solely on contributions,

which penalizes savers experiencing financial market downturns while favoring

those experiencing financial gains. Some

commenters requested clarification that

the safe harbor could be applied each time

the account balance reaches the applicable

limit, and is not limited to just one application. The final regulations, like the 2015

proposed regulations, provide that, once

the account balance falls below the aggregate contribution limit, additional contributions again may be accepted, again

subject to the aggregate contribution limit.

December 7, 2020

One commenter, however, expressed

concerns that the proposed safe harbor,

by substituting the account balance for

the aggregate contribution limit, renders

an ABLE account less attractive as a savings vehicle for the designated beneficiary. The commenter noted that earnings on

contributions to the account may cause

the account balance to reach the aggregate

contribution limit long before aggregate

contributions to the account rise to that

limit. Therefore, the commenter recommended replacing the safe harbor in the

2015 proposed regulations with a sixmonth grace period during which a qualified ABLE program could identify and

disgorge excess aggregate contributions.

The Treasury Department and the IRS

are also concerned, however, with the

opposite situation in which total contributions have reached the aggregate contribution limit but distributions and/or decreases in market value have reduced the

account balance to below the aggregate

contribution limit. In that case, without

the safe harbor, all further contributions

would be prohibited. Accordingly, the

Treasury Department and the IRS continue to view the proposed safe harbor as

potentially more favorable to the designated beneficiary than an approach focused

on cumulative contributions. In addition,

some commenters predicted that the safe

harbor would reduce the administrative

costs of qualified ABLE programs. Therefore, the final regulations retain the safe

harbor provision but clarify that the safe

harbor may be applied an unlimited number of times and that, once contributions

recommence, they are subject to both the

annual and aggregate contribution limits. The final regulations also change a

cross-reference that caused some confusion among commenters.

The aggregate contribution limit is

likely to be different for each qualified

ABLE program because that limit is determined by the limit established by each

particular State for contributions to its

qualified tuition program under section

529(b)(6). One commenter asked that the

final regulations permit rollovers and program-to-program transfers of amounts in

excess of the transferee ABLE program’s

aggregate contribution limit if such

amount does not exceed the aggregate

contribution limit of the transferor ABLE

1568

program, or, if it does, that it exceeds that

limit solely because of investment growth.

The commenter suggested that the transferee ABLE program would reject additional contributions until the account

balance falls below the aggregate contribution limit set by the transferee ABLE

program. The final regulations adopt this

suggestion and exclude rollovers, program-to-program transfers, and changes

to a new designated beneficiary who is an

eligible individual and a sibling of the former designated beneficiary for purposes of

the aggregate contribution limit, provided

that subsequent contributions are prohibited either under the general rule or the safe

harbor. The Treasury Department and the

IRS view this exclusion as consistent with

the account balance safe harbor.

C. Additional contribution limit and

applicable poverty line

Consistent with the TCJA amendment to section 529A(b)(2)(B), the 2019

proposed regulations provided that an

employed or self-employed designated

beneficiary described in section 529A(b)

(7) may contribute to his or her ABLE account the lesser of the designated beneficiary’s compensation for the taxable year

or an amount equal to the poverty line for

a one-person household for the calendar

year preceding the calendar year in which

the designated beneficiary’s taxable year

begins.

Section 529A(b)(7)(B) provides that

the term poverty line referred to in section

529A(b)(2)(B)(ii) has the same meaning

given to that term by section 673 of the

Community Services Block Grant Act (42

U.S.C. 9902). Consistent with the 2019

proposed regulations, the final regulations

provide that the poverty line in section

529A(b)(7)(B) is to be determined by

using the poverty guidelines updated periodically in the Federal Register by the

U.S. Department of Health and Human

Services under the authority of 42 U.S.C.

9902(2). Those guidelines vary based on

locality. Specifically, there are three separate guidelines: (1) the contiguous 48

states and the District of Columbia, (2)

Alaska, and (3) Hawaii. The 2019 proposed regulations provided that a designated beneficiary’s contribution limit is to

be determined using the poverty guideline

Bulletin No. 2020–50

applicable in the state of the designated

beneficiary’s residence.

One commenter suggested that the final

regulations should provide that the poverty line on which the designated beneficiary’s contribution limit is based should

be uniform throughout the United States

to avoid both confusion and an incentive

for a move to a state with a higher poverty

line. The Treasury Department and the IRS

have concluded that the poverty guideline

that most closely reflects the employed

designated beneficiary’s cost of living is

the most relevant for determining the contribution limit, and that a move to a state

with a higher poverty line generally also

would subject the designated beneficiary

to a higher cost of living, thus effectively

negating any incentive to move. Therefore, consistent with the 2019 proposed

regulations, the final regulations provide

that a designated beneficiary’s contribution limit is determined using the poverty

guideline applicable in the state of the designated beneficiary’s residence, and that

an employed or self-employed designated

beneficiary described in section 529A(b)

(7) may contribute to his or her ABLE account the lesser of the designated beneficiary’s compensation for the taxable year

or an amount equal to the poverty line for

a one-person household for the calendar

year preceding the calendar year in which

the designated beneficiary’s taxable year

begins.

One commenter suggested that designated beneficiaries generally will not easily be able to determine the annual applicable poverty line and requested that the IRS

require ABLE programs to provide notice

to designated beneficiaries each year of

the poverty line for each of the geographic

areas applicable for that year. Two commenters also expressed concern about the

statutory provision that makes the designated beneficiary responsible for ensuring

that these contributions of compensation

income do not exceed the applicable limit,

and pointed out that an uncorrected excess

contribution would be likely to jeopardize

the designated beneficiary’s qualification

for public benefits on which the designated beneficiary relies. They suggested

that supplemental information is needed

to assist the designated beneficiaries and

their advisors, and recommended that

ABLE programs be required not only to

Bulletin No. 2020–50

provide annual updates on the applicable

poverty limits, but also general information about the compensation contribution

limit, as well as notice to each designated

beneficiary when compensation contributions are approaching and/or have exceeded the applicable level, and when other

contributions have reached the annual and

cumulative limits. Finally, a commenter

suggested that ABLE programs should allow ABLE beneficiaries to opt out of the

compensation contribution limit to assist

those designated beneficiaries who do not

want to incur any risk of exceeding the applicable limit.

The final regulations do not incorporate these suggestions. The Treasury Department and the IRS note that the statute

does not require qualified ABLE programs

to provide any of the notices suggested by

the commenter and, in fact, requires the

designated beneficiary to be solely responsible for monitoring the increased limit.

Furthermore, the Treasury Department

and the IRS are concerned that requiring

qualified ABLE programs to provide these

notices would be unduly burdensome and

would increase costs to the programs. Although the final regulations do not impose

such notification requirements on qualified ABLE programs, the Treasury Department and the IRS acknowledge that it

may be helpful and a real service to designated beneficiaries if the ABLE programs

would make this information available to

designated beneficiaries, whether by information posted online or otherwise, and

suggest that ABLE programs are free to

provide such a service if they wish. Finally, the Treasury Department and the IRS

note that, because making the additional

contribution of the designated beneficiary’s compensation income is voluntary,

there is no need to opt out of the ability to

make such a contribution.

Another commenter requested that the

final regulations provide that an amount

not in excess of the new compensation

contribution limit may be contributed by

a person other than the designated beneficiary. The commenter pointed out that

many employed designated beneficiaries

have to use their earned income to pay

their living expenses, thus leaving little

for saving in the ABLE account, and that,

without such a provision, another person’s

gift to match the designated beneficiary’s

1569

earned income would have to be made

through the designated beneficiary’s account, which could adversely impact qualification for public benefits. The Treasury

Department and the IRS understand the

potential problem but believe that such a

provision would be contrary to the explicit

language of the statute, requiring that such

contributions be made by the designated

beneficiary. Further, the legislative history of the TCJA, like the statute, explicitly states that additional amount must be

contributed by the designated beneficiary.

See H.R. Rep. No. 115-466, at 329 (2017)

(Conf. Rep.). Therefore, the final regulations do not incorporate this suggestion.

The commenter also requested confirmation that a direct deposit of the designated beneficiary’s compensation income

to his or her ABLE account is a contribution “by” the designated beneficiary, as

well as confirmation that contributions

subject to the new compensation contribution limit do not have to be made from

the designated beneficiary’s compensation

income. The Treasury Department and the

IRS agree. Money is fungible. In addition, the statute does not require that the

contributions come from the designated

beneficiary’s earned income; rather, the

designated beneficiary’s earned income is

one measure used to determine the additional contribution limit applicable to an

employed designated beneficiary’s own

contributions. The final regulations clarify

these two points.

One commenter asked whether a designated beneficiary’s compensation contributions count towards the compensation

contribution limit even if the annual contribution limit has not been reached. If the

new limit on compensation contributions

has been reached, the designated beneficiary may continue to make additional

contributions until the annual or cumulative contribution limits have been reached.

The Treasury Department and the IRS believe each qualified ABLE program has

the flexibility to determine how to identify

contributions from the designated beneficiary that are compensation contributions

subject to the new contribution limit.

Finally, one commenter requested clarification that, although contributions to

and distributions from an ABLE account

generally are not taken into account in

determining the designated beneficiary’s

December 7, 2020

qualification for certain public benefits,

the earned income of a designated beneficiary that is deposited into his or her

ABLE account nevertheless is earned

income and, as such, may be counted in

calculating “substantial gainful activity”

of the designated beneficiary which, regardless of its deposit into an ABLE account, may have an impact for purposes of

determining the designated beneficiary’s

qualification for those benefits. This is not

a tax issue and thus is beyond the scope of

these regulations.

D. Application of gift tax and GST to

contributions to an ABLE account

Contributions to an ABLE account are

completed gifts to the designated beneficiary of that ABLE account. Gift tax

consequences may arise from a contribution to an ABLE account even though the

aggregate amount of contributions to that

ABLE account from all contributors must

not exceed the annual exclusion amount

under section 2503(b) applicable to any

single contributor. For example, if a contributor makes gifts to an individual in addition to that contributor’s contributions

to the same individual’s ABLE account,

the contributor’s total gifts to such individual in that year could give rise to a gift

tax liability.

Contributions can be made by any person. The term person is defined in section

7701(a)(1) to include an individual, trust,

estate, partnership, associations, company,

or corporation. Therefore, for purposes of

section 529A(b)(1)(A), a person includes

an individual as well as each of the entities

described in section 7701(a)(1). Although

under section 2501(a)(1), the gift tax applies only to gifts by individuals, it applies

to gifts made directly or indirectly. As a

result, a gift made by a trust, estate, association, company, corporation, or partnership is treated for gift tax purposes as

having been made by the owner(s) of that

entity. For example, a gift from a corporation to a designated beneficiary is treated as a gift from the shareholders of the

corporation to the designated beneficiary.

See § 25.2511-1(h)(1). Accordingly, the

final regulations adopt unchanged the provisions of the 2015 proposed regulations

and provide that, for purposes of section

529A, a contribution by a corporation is

treated as a gift by its shareholders and a

contribution by a partnership is treated as

a gift by its partners. This rule also applies

to trusts, estates, associations, and companies. See section 2511 and § 25.2511-1(c)

and (h).

The legislative history of section 529A

suggests that a “person” described in section 529A(b)(1)(A) who can make contributions to an ABLE account includes the

designated beneficiary of an ABLE account. See 160 Cong. Rec. H7051, H8317,

H8318, H8321, H8322 (2014). A person

may transfer his or her own funds into an

ABLE account of which that person is the

designated beneficiary. Because an individual cannot make a gift to himself or

herself, the final regulations, like the 2015

proposed regulations, provide that no contribution by a designated beneficiary to his

or her own ABLE account is treated as a

completed gift. See § 25.2511-2(b) and

(c).

However, because the statute contemplates that the funds being deposited into

an ABLE account are taxable gifts, and

the contributions from the designated beneficiary into his or her own ABLE account

were never treated as completed gifts to

the designated beneficiary, the 2015 proposed regulations provided that, notwithstanding section 529A(c)(2)(C), which

makes gift and GST taxes inapplicable to

the change of beneficiary of an ABLE account if the transferee is both an eligible

individual and a sibling of the former designated beneficiary, if the designated beneficiary transfers the funds in the account

to any other person, including a sibling,

the designated beneficiary making the

transfer is the donor for gift tax purposes

and the transferor for GST tax purposes to

the extent of the funding provided by that

designated beneficiary and the accumulated earnings thereon. Although the provisions of section 529A(c)(2)(C) would

appear to apply to exclude the balance of

the account from gift and GST taxes if the

transfer was to a sibling, one commenter

asked why, in that case, the entire value

of the account would not be a taxable gift.

That commenter also objected to requiring ABLE programs to track contributions

from the designated beneficiary for this

purpose as being too burdensome.2

In light of these comments, the Treasury Department and the IRS have reconsidered the approach of the 2015 proposed

regulations, taking into account the comments describing the burden of separately

tracking contributions from the designated

beneficiary. The final regulations balance

the treatment of contributions as a completed gift and the exclusion of gifts to a

sibling of the designated beneficiary by

taking the least burdensome approach, as

requested by these commenters. Specifically, even though the portion of the account attributable to contributions from the

designated beneficiary is the only part of

the ABLE account that was not previously

treated as a gift, the designated beneficiary

is the owner of the entire account and the

gift and GST tax properly applies to the

entire account when there is a change of

designated beneficiary, but those taxes are

inapplicable if the new designated beneficiary is a sibling of the former designated

beneficiary. Making this change makes

it unnecessary for a qualified ABLE program to separately track contributions

made by the designated beneficiary. The

final regulations reflect this change.

E. Return of excess contributions and

excess aggregate contributions

The 2015 proposed regulations define

an “excess contribution” as the amount

by which the amount contributed during

the taxable year of the designated beneficiary to an ABLE account exceeds the

limit in effect under section 2503(b) (the

gift tax annual exclusion amount) for the

calendar year in which the taxable year of

the designated beneficiary begins (annual

contribution limit). The 2015 proposed

regulations defined an “excess aggregate

contribution” as the amount contributed

Another commenter stated that requiring a qualified ABLE program to assign “earnings attributable to that contribution” would require the qualified ABLE program to track specific tax

lots for each contribution, which would be unduly burdensome. Therefore, the commenter recommended that the phrase “any earnings attributable to that contribution” be deleted. It is not

correct that earnings would have to be tracked to meet such a requirement, as the rules for calculating earnings attributable to a contribution would not need to require tracking earnings on a

particular investment but could be based on the proportionate increase in value of the account over the relevant period. See § 1.408-11. However, given that the Treasury Department and the

IRS agree that the entire account would be a taxable gift, it is not necessary to calculate earnings attributable to a contribution.

2

December 7, 2020

1570

Bulletin No. 2020–50

during the taxable year of the designated

beneficiary that causes the total amount

contributed since the establishment of

the ABLE account to exceed the limit in

effect under section 529(b)(6) or, in the

context of the safe harbor, a contribution

that causes the account balance to exceed

the limit in effect under section 529(b)(6)

(aggregate contribution limit).

Consistent with section 529A(c)(3)(C),

the 2015 proposed regulations provided

that, if an excess contribution or an excess aggregate contribution is deposited

into or allocated to the ABLE account of a

designated beneficiary, a qualified ABLE

program would be required to return that

excess contribution or excess aggregate

contribution, along with all net income

attributable to the excess amount, to the

person or persons who made the contribution. The 2015 proposed regulations provided rules for determining the net income

attributable to a contribution made to an

ABLE account, and also provided that excess contributions and excess aggregate

contributions must be returned to their

contributors on a last-in-first-out (LIFO)

basis. The 2015 proposed regulations also

required that a returned contribution be

received by the contributor on or before

the due date (including extensions) for

the Federal income tax return of the designated beneficiary for the taxable year in

which the excess contribution or excess

aggregate contribution was made. Failure

to return an excess contribution within

that time period will result in the imposition on the designated beneficiary of a 6

percent excise tax under section 4973(a)

(6) on the amount of the excess contribution. See section 4973(a)(6) and (h)(2).

However, the 2015 proposed regulations

impose an affirmative obligation on the

qualified ABLE program to ensure that

these excess contributions are returned on

a timely basis so that the excise tax never

will be imposed on the designated beneficiary.

The 2015 proposed regulations also

provided that, if an excess contribution or

excess aggregate contribution and the net

income attributable to such contribution

are returned to a contributor other than

the designated beneficiary, the qualified

ABLE program is to notify the designated

beneficiary of such return at the time of

the return.

Bulletin No. 2020–50

One commenter objected to the requirement that an excess contribution or excess

aggregate contribution be returned to the

person or persons who made the contribution, which, according to the commenter,

places a burden on the qualified ABLE

program to track the source, amount, and

date of each contribution. The commenter

suggested that it would be less burdensome if excess contributions and excess

aggregate contributions were returned instead to the designated beneficiary who,

in turn, would then be responsible for returning the contribution to the appropriate

contributor. The Treasury Department and

the IRS decline to adopt this suggestion.

Requiring the designated beneficiary to

return contributions would be unduly burdensome to the designated beneficiary,

the person for whom many commenters

requested as much simplification as possible. More importantly, contributions

returned to the designated beneficiary are

likely to be counted as a resource of the

designated beneficiary for purposes of determining his or her eligibility for benefits

under certain means-tested government

programs, thus potentially causing the

designated beneficiary to lose eligibility

for those critical benefits.

Another commenter asked that the final regulations eliminate the requirement

to return any earnings on an excess contribution or excess aggregate contribution

to the contributor, citing the cost and other

burdens of creating an automated process

to track individual contributions and calculate the earnings thereon. The Treasury

Department and the IRS decline to adopt

this suggestion because section 529A(c)

(3)(C)(ii) requires the return of the net

income attributable to an excess contribution. The statute also requires that the net

income attributable to an excess contribution be determined in the same manner

as in the case of withdrawn excess contributions to IRAs. In addition, because this

determination is based on the change in

value of the account, it does not require

the tracking of earnings attributable to

each contribution. For more information

on how to determine the net income attributable to an excess contribution, see

Publication 590-A, “Contribution to Individual Retirement Arrangements (IRAs)”,

Worksheet 1-4, “Determining the Amount

of Net Income Due To an IRA Contribu-

1571

tion and Total Amount To Be Withdrawn

From the IRA.” See also § 1.408-11.

A few commenters also recommended

that the final regulations explicitly state

that a qualified ABLE program need not

notify the designated beneficiary when it

rejects and returns an excess contribution

or excess aggregate contribution from another contributor to the designated beneficiary’s ABLE account as long as such

contribution was not deposited into or

allocated to the ABLE account. Because

such a contribution could not have generated any earnings in the ABLE account,

the Treasury Department and the IRS

concluded that there is no need for such

a contribution to generate any reporting

requirement. The final regulations clarify

that notification is not required if amounts

are rejected by the qualified ABLE program before they are deposited into or

allocated to the designated beneficiary’s

ABLE account.

Another commenter criticized the requirement that excess contributions be

returned on a LIFO basis, stating that a

LIFO approach could result in the return

of contributions made by the designated

beneficiary before contributions made by

another person, thereby making an ABLE

account less attractive as a financial planning tool for the designated beneficiary.

The commenter recommended that the

final regulations require that the qualified

ABLE program return contributions made

by persons other than the designated beneficiary before returning any contribution

made by the designated beneficiary. The

Treasury Department and the IRS decline

to adopt this recommendation in the final

regulations. The Treasury Department and

the IRS note that a qualified ABLE program may allow the designated beneficiary or person with signature authority over

an ABLE account to place restrictions on

the contributors and/or the amounts contributed to the account if the designated

beneficiary is concerned about the impact

of the unwanted contributions on financial

planning. In addition, adopting the suggestion would impose additional burdens

on the qualified ABLE programs, that then

would be required to separately track contributions from the designated beneficiary (which several commenters opposed).

Moreover, many states have designed

their programs and administrative systems

December 7, 2020

to stop accepting contributions once the

total contributions or value of the account

reaches the applicable limit. Such a system is not consistent with a rule other than

a LIFO rule.

F. Return of excess compensation

contribution

The 2019 proposed regulations defined an excess compensation contribution as the amount by which the amount

contributed during the taxable year of an

employed designated beneficiary to the

designated beneficiary’s ABLE account

exceeds the limit in effect under section

529A(b)(2)(B)(ii) for the calendar year in

which that taxable year of the employed

designated beneficiary begins.

Consistent with section 529A(b)(2)

and the 2019 proposed regulations, if an

excess compensation contribution is deposited into or allocated to the ABLE

account of a designated beneficiary, the

qualified ABLE program must return the

excess contribution, along with all net

income attributable to the excess contribution, as determined under the rules set

forth in § 1.408-11 (treating references to

an IRA as references to an ABLE account,

and references to returned contributions

under section 408(d)(4) as references to

excess compensation contributions), to

the employed designated beneficiary. Also

consistent with section 529A(b)(2) and

the 2019 proposed regulations, the final

regulations provide that it will be the sole

responsibility of the designated beneficiary (or the person acting on the designated

beneficiary’s behalf) to identify and request the return of any excess contribution of such compensation income. Such

returns of excess compensation contributions must be received by the employed

designated beneficiary on or before the

due date (including extensions) of the designated beneficiary’s income tax return for

the year in which the excess compensation

contributions were made. A failure to return excess compensation contributions

within this time period will result in the

imposition on the designated beneficiary

of a 6 percent excise tax under section

4973(a)(6) on the amount of excess compensation contributions.

Additionally, in order to minimize administrative burdens for the designated

December 7, 2020

beneficiary and the qualified ABLE program, for purposes of ensuring that the

limit on contributions made under section

529A(b)(2)(B)(ii) is not exceeded, the

final regulations, like the 2019 proposed

regulations, provide that the qualified

ABLE program may rely on self-certifications, made under penalties of perjury,

of the designated beneficiary or the person acting on the designated beneficiary’s

behalf.

G. Request for the TIN of a contributor

Because a qualified ABLE program is

required to return to the contributor any

excess contribution or excess aggregate

contribution that is deposited into or allocated to an ABLE account (along with

any net income attributable to the contribution), the 2015 proposed regulations

required a qualified ABLE program to request the TIN of each contributor to the

ABLE account at the time a contribution

was made if the qualified ABLE program

did not already have a record of that person’s correct TIN.

Numerous commenters expressed concerns about the substantial burdens that

they anticipate this provision would place

upon qualified ABLE programs. Commenters noted that contributions are likely

to come from many sources and be made

in various ways (for example, payroll

deduction, check, debit, automated clearing house (ACH) transfers, and others),

making it difficult as a practical matter to

obtain the TIN of the contributor. Commenters also conjectured that some contributors, especially those making small

gifts, might be reluctant to make a contribution if they were required to provide

their TIN.

As an alternative to the provision in the

2015 proposed regulations, one commenter suggested that the final regulations require the qualified ABLE program to pay

an excess contribution to the designated

beneficiary rather than the contributor,

thereby obviating the need to procure the

contributor’s TIN. As noted previously,

the Treasury Department and the IRS do

not agree with this suggestion, because the

designated beneficiary’s receipt of such an

excess amount could put the designated

beneficiary at risk of being disqualified for

his or her Federal benefits that are income

1572

or resource based, a result that would be

inconsistent with the purposes of section

529A.

Other commenters suggested that a

qualified ABLE program be required to

collect a contributor’s TIN only if the program does not have a system in place to

prevent an excess contribution or excess

aggregate contribution from being deposited into an ABLE account. The commenters expect that most qualified ABLE programs will adopt the automated systems

currently used by section 529 qualified

tuition programs either to reject such excess contributions before they are deposited into a particular ABLE account, or to

escrow and immediately refund the excess

contributions, again before being deposited into or allocated to a particular account.

With such a system in place, qualified

ABLE programs should not need to return

net earnings on contributions, and thus

would not need the contributor’s TIN.

Other commenters recommended that the

obligation to request a contributor’s TIN

should arise only in the unlikely circumstance in which an excess contribution or

excess aggregate contribution has been

deposited into an individual’s ABLE account and has accrued earnings or losses.

One commenter suggested eliminating the

TIN requirement altogether, while another

suggested the collection of TINs should be

required only in the case of contributions

of more than a specified dollar amount.

Commenters requested interim guidance on this issue to facilitate the establishment of qualified ABLE programs

by the States. In response, the Treasury

Department and the IRS issued Notice

2015-81, advising that it was anticipated

that the final regulations would modify

the requirement that a qualified ABLE

program request the TIN of a contributor at the time of the contribution. That

modification, which is adopted in the

final regulations, requires a qualified

ABLE program to request the TIN of a

contributor at the time a contribution is

made (assuming the qualified ABLE program does not already have a record of

the contributor’s correct TIN) only if the

qualified ABLE program does not have a

system in place to identify and reject excess contributions and excess aggregate

contributions before they are deposited

into or allocated to an ABLE account. In

Bulletin No. 2020–50

the event that a qualified ABLE program

has such a system in place but an excess

contribution or excess aggregate contribution, nevertheless, is deposited into or

allocated to an ABLE account, the qualified ABLE program then must request

the TIN of the contributor who made the

excess contribution or excess aggregate

contribution in order to permit the ABLE

program to file accurate and complete

required reporting of the earnings attributable thereto. A return of contributions

and earnings from the ABLE account is

a distribution, so the IRS and the contributor must receive a Form 1099-QA,

“Distributions from ABLE Accounts”,

showing the contributor’s TIN.

4. Investment Direction

Consistent with section 529A(b)(4),

the 2015 proposed regulations provided

that a qualified ABLE program may not

allow the designated beneficiary of an

ABLE account to direct, either directly or

indirectly, the investment of any contributions to his or her account (or any earnings

thereon) more often than twice in any calendar year. The 2015 proposed regulations

provided that a program does not violate

this requirement merely because it permits

a designated beneficiary or a person with

signature authority over a designated beneficiary’s account to serve as one of the

program’s board members or employees,

or as a board member or employee of a

contractor that the program hires to perform administrative services.

One commenter inquired whether the

designated beneficiary would be allowed

to direct investments of contributions

more than twice a year due to a change

in the investment climate. Another commenter suggested that the designated beneficiary be allowed to direct the investment of contributions in his or her ABLE

account at least monthly, while yet another

commenter recommended up to four permitted changes per year. Because section

529A(b)(4) requires a qualified ABLE

program to limit the number of times any

designated beneficiary may, directly or indirectly, direct the investment of any contribution to no more than two times in any

calendar year, the Treasury Department

and the IRS do not adopt these suggestions in the final regulations.

Bulletin No. 2020–50

Some commenters asked that the final

regulations clarify that an investment direction does not include the transfer of account assets from the investment portion

of an ABLE account to a money market

account or similar vehicle maintained by

the qualified ABLE program to process a

requested distribution. The Treasury Department and the IRS agree with these

commenters that moving funds from an

investment fund into a cash fund within

the ABLE account in order to process a

distribution is not the kind of change in investment direction addressed by the statutory limit, and have made the requested

clarification in the final regulations.

Another commenter suggested that

the final regulations clarify that a reallocation of the assets in an ABLE account

among different broad-based investment

strategies offered on the qualified ABLE

program’s investment menu (such as a

reallocation from a diversified large cap

fund to a diversified bond fund, or from

a small cap fund to a target date fund)

does not constitute investment direction.

In the commenter’s view, the reallocation

of a portion of an ABLE account’s assets

among a set of broad-based investment

options offered by the qualified ABLE

program, such as diversified mutual funds,

age-based target date funds, or Federally-insured CDs, is not investment direction because the designated beneficiary is

not exercising control over the underlying

investments, as would be the case if he

or she were allowed to invest in specific

stocks or funds not offered as part of the

qualified ABLE program’s menu of broadbased strategies. The commenter asserted

that, by offering a limited menu of broadbased investment options, the qualified

ABLE program effectively makes the

investment decisions and that giving the

designated beneficiary the authority to

make periodic reallocations among these

options is not sufficient control to be considered an investment direction.

The Treasury Department and the IRS

do not agree with this commenter. The

Treasury Department and the IRS concluded that a reallocation of an account’s

assets among different investment vehicles or types of funds constitutes an investment direction within the meaning of

section 529A(b)(4), with two exceptions.

As addressed earlier in this section 4, the

1573

first exception is the transfer of assets

within an ABLE account to a cash fund.

The second exception is an automatic

rebalancing of the assets in an ABLE account merely to maintain a particular asset

allocation. The Treasury Department and

the IRS concluded that such an adjustment

is not a change in investment direction; instead, it is to preserve and effectuate an

investment allocation or direction selected

at some previous time that is needed because of the frequent fluctuations in market values of investments. Accordingly,

the final regulations provide that neither

of these adjustments is a change in investment direction for purposes of section

529A(b)(4).

Some commenters asked how the annual limit on investment direction applies to a successor designated beneficiary in the year in which he or she first

succeeds to the ABLE account of the

former designated beneficiary. The Treasury Department and the IRS understand

that the former and successor designated

beneficiaries may have different financial

situations, and, therefore, different investment needs. These final regulations apply

the contribution limits separately to each

designated beneficiary, and the Treasury

Department and the IRS concluded that it

would be most consistent with the purpose

of section 529A and its other provisions

to provide that the investment change

limitation also applies separately to each

designated beneficiary. As a result, the final regulations provide that the successor

designated beneficiary is allowed to direct

the investment of contributions and earnings in the ABLE account up to two times

in the calendar year in which he or she

becomes the designated beneficiary of the

ABLE account, regardless of whether the

former designated beneficiary previously

had done so in the same calendar year.

5. No Pledging of Interest as Security for

a Loan

Consistent with section 529A(b)(5), the

2015 proposed regulations provided that a

program will not be treated as a qualified

ABLE program unless the terms of the

program, or a state statute or regulation

that governs the program, prohibit any interest in the program or any portion thereof from being used as security for a loan.

December 7, 2020

A few commenters observed that many

ABLE accounts are likely to be transactional in nature. One commenter asked

whether a checking account or a debit or

credit card can be issued to a designated

beneficiary and linked to his or her ABLE

account. Another commenter asked that

the final regulations clarify that advancing funds from an ABLE account to the

designated beneficiary – such as through a

checking account or debit card privileges

connected to the ABLE account – is neither a loan nor security for a loan. Another

commenter, observing that checking accounts and debit cards likely will be associated with ABLE accounts, noted that it

is unlikely that a qualified ABLE program

will be able to convert an account’s underlying investments into cash on the same

day as the transaction to be funded occurs. In other contexts, these transactional

capabilities generally are effected by an

issuer’s zero interest advance for a short

period in order to fund the account or debit card, followed by a reimbursement of

the issuer when the cash generated by the

liquidation of the investment is received

by the issuer. The commenter further observed that these short-term advances are

distinguishable from third party loans and

requested that the final regulations clarify that these short-term advances are not

loans. Similarly, the commenter requested that the final regulations clarify that

an advance made to an ABLE account by

a qualified ABLE program before settlement of a check or other money transfer

by a contributor is not a loan.

The Treasury Department and the

IRS agree that it is possible for an ABLE

program to permit the use of checking

accounts and debit cards to facilitate the

qualified ABLE program’s ability to make

qualified distributions. For purposes of

section 529A, the final regulations do not

treat these uses—which are necessary to

make funds available for qualified disability expenses as intended— as pledging the

interest in the ABLE account as security

for a loan, provided that these uses do not

result in an advance of funds to a designated beneficiary in excess of the amount

in his or her ABLE account. Similarly, the

program administrator’s advance of funds

to satisfy a withdrawal request while the

proceeds from the sale of an account asset, sufficient to satisfy that withdrawal

December 7, 2020

request, clear or settle will not be treated

as a pledge or grant of security or as a loan

for purposes of this section. However,

whether a different particular arrangement

constitutes the use of an interest in a qualified ABLE program as security for a loan

is a factual determination that is beyon

This text is long and has been trimmed here. Open the source document for the complete record.