Bulletin No. 2020–29

Agency decision

Ask Donna

What actually matters in this document.

Text

HIGHLIGHTS

OF THIS ISSUE

Bulletin No. 2020–29

July 13, 2020

These synopses are intended only as aids to the reader in

identifying the subject matter covered. They may not be

relied upon as authoritative interpretations.

ADMINISTRATIVE

Rev. Proc. 2020-35, page 82.

This procedure provides specifications for the private printing of red-ink substitutes for the 2020 revisions of certain

information returns. This procedure will be reproduced as

the next revision of Publication 1179. Rev. Proc. 2019-24 is

superseded.

ADMINISTRATIVE, EXCISE TAX

Notice 2020-48, page 72.

Notice 2020-48 provides expanded disaster relief, in the

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

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

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

equipment for the second quarter of 2020.

EMPLOYEE PLANS

Notice 2020-51, page 73.

This notice provides guidance relating to the waiver in 2020

of required minimum distributions (RMDs) from certain retirement plans and IRAs due to the amendment of § 401(a)(9)

of the Internal Revenue Code by section 2203 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L.

116-136. In particular, this notice provides rollover relief (including an extension of the 60-day rollover period to August

31, 2020) with respect to waived RMDs and certain related

payments, permits certain repayments to inherited IRAs, as

described in § 402(c)(11), and sets out Q&A’s to answer anticipated questions regarding the waiver of 2020 RMDs. The

Finding Lists begin on page ii.

Appendix to this notice provides a sample amendment that

plans may adopt to provide recipients of distributions that

would otherwise be RMDs a choice whether to receive the

waived RMDs and certain related payments.

Notice 2020-52, page 79.

This notice clarifies the requirements that apply to a mid-year

amendment to a safe harbor § 401(k) or § 401(m) plan that

reduces only contributions made on behalf of highly compensated employees. This notice also provides temporary

relief in connection with the ongoing Coronavirus Disease

2019 (COVID-19) pandemic from certain requirements that

would otherwise apply to a mid-year amendment to a safe

harbor § 401(k) or § 401(m) plan adopted between March

13, 2020, and August 31, 2020, that reduces or suspends

safe harbor contributions.

INCOME TAX

T.D. 9899, page 62.

Section 199A provides that, for taxable years beginning after December 31, 2017 and before January 1, 2026, taxpayers other than C corporations may deduct 20 percent of

the qualified business income from the taxpayer’s qualified

trades or businesses, which can be operated through a partnership, S corporation, trust, estate, or sole proprietorship.

The deduction is subject to multiple limitations and special

rules apply to specified agricultural or horticultural cooperatives. These final regulations provided additional guidance

on the treatment of previously suspended losses included

in qualified business income and on the determination of the

section 199A deduction for taxpayers that hold interests in

regulated investment companies, split-interest trusts, and

charitable remainder trusts.

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.

July 13, 2020

Bulletin No. 2020–29

Part I

26 CFR 1.199A-3; 26 CFR 1.199A-6

T.D. 9899

DEPARTMENT OF THE

TREASURY

Internal Revenue Service

26 CFR Part 1

Qualified Business Income

Deduction

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document contains final regulations concerning the deduction

for qualified business income (QBI) under section 199A of the Internal Revenue

Code (Code). The regulations will affect

certain individuals, partnerships, S corporations, trusts, and estates. The regulations provide guidance on the treatment

of previously suspended losses included

in qualified business income. The regulations also provide guidance on the determination of the section 199A deduction

for taxpayers that hold interests in regulated investment companies, split-interest

trusts, and charitable remainder trusts.

DATES: Effective Date: These regulations are effective on August 24, 2020.

Applicability Dates: These regulations apply to taxable years beginning after August

24, 2020. Pursuant to section 7805(b)(7),

taxpayers may choose to apply the amendments to §§1.199A-3 and 1.199A-6 set

forth in this Treasury decision to taxable

years beginning on or before August 24,

2020. Alternatively, taxpayers who chose

to rely on the February 2019 Proposed

Regulations for taxable years beginning

on or before August 24, 2020, may continue to do so for such years. However, taxpayers who choose to apply any section

of these regulations or continue to rely on

any section of the February 2019 Proposed

Regulations for taxable years beginning

July 13, 2020

on or before August 24, 2020, must follow

the rules of the applicable section in a consistent manner for each such year.

FOR FURTHER INFORMATION

CONTACT: Concerning §1.199A-3(d),

Michael Y. Chin or Steven Harrison at (202) 317-6842; concerning

§§1.199A-3(b) and 1.199A-6, Vishal R.

Amin or Sonia Kothari at (202) 317-6850

or Robert D. Alinsky or Margaret Burow

at (202) 317-5279.

SUPPLEMENTARY INFORMATION:

Background

This document contains amendments

to the Income Tax Regulations (26 CFR

part 1) under section 199A of the Code.

Section 199A was enacted on December 22, 2017, by section 11011 of Public

Law 115-97, 131 Stat. 2054, commonly

referred to as the Tax Cuts and Jobs Act

(TCJA), and was amended on March 23,

2018, retroactively to January 1, 2018,

by section 101 of Division T of the

Consolidated Appropriations Act, 2018,

Pub. L. 115-141, 132 Stat. 348 (2018

Act). Section 199A applies to taxable

years beginning after 2017 and before

2026.

Section 199A provides a deduction of

up to 20 percent of QBI from a U.S. trade

or business operated as a sole proprietorship or through a partnership, S corporation, trust, or estate (section 199A deduction). The section 199A deduction

may be taken by individuals and by some

trusts and estates. A section 199A deduction is not available for wage income or

for income earned by a C corporation (as

defined in section 1361(a)(2)). If the taxpayer’s taxable income exceeds the statutorily defined amount in section 199A(e)

(2) (threshold amount), the taxpayer’s section 199A deduction may be limited based

on (i) the type of trade or business conducted, (ii) the amount of W-2 wages paid

with respect to the trade or business (W-2

wages), and/or (iii) the unadjusted basis

immediately after acquisition (UBIA) of

qualified property held for use in the trade

or business (UBIA of qualified property).

These statutory limitations are subject to

phase-in rules in section 199A(b)(3)(B)

based upon taxable income above the

threshold amount (phase-in rules).

Section 199A also provides individuals

and some trusts and estates, but not corporations, a deduction of up to 20 percent

of their combined qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income, including qualified REIT dividends

and qualified PTP income earned through

passthrough entities. This component of

the section 199A deduction is not limited

by W-2 wages or UBIA of qualified property.

Overall, the section 199A deduction

is the lesser of (1) the sum of the combined QBI and qualified REIT and PTP

components described in the prior two

paragraphs or (2) an amount equal to 20

percent of the excess (if any) of the taxpayer’s taxable income for the taxable

year over the taxpayer’s net capital gain

for the taxable year.

Additionally, section 199A(g) provides

that specified agricultural or horticultural cooperatives may claim a special entity-level deduction that is substantially

similar to the domestic production activities deduction under former section 199.

The statute expressly grants the Secretary of the Treasury or his delegate (Secretary) authority to prescribe such regulations as are necessary to carry out the

purposes of section 199A (section 199A(f)

(4)), and provides specific grants of authority with respect to certain issues including: the treatment of acquisitions, dispositions, and short taxable years (section

199A(b)(5)); certain payments to partners

for services rendered in a non-partner capacity (section 199A(c)(4)(C)); the allocation of W-2 wages and UBIA of qualified

property (section 199A(f)(1)(A)(iii)); restricting the allocation of items and wages under section 199A and such reporting

requirements as the Secretary determines

appropriate (section 199A(f)(4)(A)); the

application of section 199A in the case

of tiered entities (section 199A(f)(4)(B));

preventing the manipulation of the depreciable period of qualified property using

transactions between related parties (section 199A(h)(1)); and determining the

UBIA of qualified property acquired in

Bulletin No. 2020–29

like-kind exchanges or involuntary conversions (section 199A(h)(2)).

The Department of the Treasury (Treasury Department) and the IRS published

final regulations (TD 9847) interpreting

section 199A on February 8, 2019 (February 2019 Final Regulations) in the Federal Register (84 FR 2952). Along with

the publication of the February 2019 Final

Regulations, the Treasury Department and

the IRS published a notice of proposed

rulemaking (REG 134652-18) in the Federal Register (84 FR 3015) providing

additional guidance under section 199A

relating to the treatment of previously suspended losses included in qualified business income and determining the section

199A deduction for taxpayers that hold

interests in regulated investment companies, split-interest trusts, and charitable

remainder trusts (February 2019 Proposed

Regulations). No public hearing on the

February 2019 Proposed Regulations was

requested or held. After full consideration

of the comments received on the February

2019 Proposed Regulations, this Treasury

decision adopts the proposed regulations

with clarifying changes and additional

modifications in response to comments as

described in the Summary of Comments

and Explanation of Revisions. Comments

on issues related to the February 2019

Proposed Regulations that are beyond the

scope of these final regulations are not

discussed in this preamble, but may be addressed in future guidance.

The Treasury Department and the IRS

also received comments on the February

2019 Final Regulations. The Treasury Department and the IRS continue to study the

issues raised in those comments and may

address them in future guidance.

Summary of Comments and

Explanation of Revisions

These final regulations contain amendments to two substantive sections of

the February 2019 Final Regulations,

§§1.199A-3 and 1.199A-6, each of which

provides rules relevant to the calculation of the section 199A deduction. The

amendments to §1.199A-3(b)(1)(iv) provide additional rules and clarification on

the treatment of suspended losses. Section

1.199A-3(d) provides guidance that allows a shareholder in a regulated invest-

Bulletin No. 2020–29

ment company (RIC) within the meaning

of section 851(a) to take a section 199A

deduction with respect to certain income

of, or distributions from, the RIC. The

amendments to §1.199A-6(d) include additional rules related to trusts and estates

under section 663 of the Code. This Summary of Comments and Explanation of

Revisions describes each of the final rules

contained in this document in turn.

I. Treatment of Previously Suspended

Losses Included in QBI

Section 1.199A-3(b)(1)(iv) of the February 2019 Final Regulations provides

that previously disallowed losses or deductions (including under sections 465,

469, 704(d), and 1366(d)) allowed in the

taxable year are generally taken into account for purposes of computing QBI,

except to the extent the losses or deductions were disallowed, suspended, limited,

or carried over from taxable years ending

before January 1, 2018. These losses are

used, for purposes of section 199A, in order from the oldest to the most recent on a

first-in, first-out (FIFO) basis. The February 2019 Proposed Regulations expanded

this rule to provide that previously disallowed losses or deductions are treated as

losses from a separate trade or business in

the year they are taken into account in determining taxable income. Further, the attributes of the previously disallowed losses or deductions, including whether they

are attributable to a trade or business and

whether they would otherwise be included

in QBI, are determined in the year the loss

or deduction is incurred.

The Treasury Department and the IRS

are aware that taxpayers and practitioners

have questioned whether the exclusion of

section 461(l) from the list of loss disallowance and suspension provisions in

§1.199A-3(b)(1)(iv) means that losses

disallowed under section 461(l) are not

considered QBI in the year the losses are

taken into account in determining taxable income. Generally, for taxable years

beginning after December 31, 2020, and

before January 1, 2026, section 461(l) disallows an excess business loss for taxpayers other than C corporations. See section

2304(a) of the Coronavirus Aid, Relief,

and Economic Security Act (CARES Act),

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

Any disallowed excess business loss is

treated as a net operating loss carryover

for the taxable year for purposes of determining any net operating loss carryover

under section 172(b) in subsequent taxable years. See section 172(b) as amended

by section 2304(b) of the CARES Act.

The list of loss disallowance and suspension provisions in §1.199A-3(b)(1)

(iv) is not exhaustive. If a loss or deduction that would otherwise be included in

QBI under the rules of §1.199A-3 is disallowed or suspended under any provision of the Code, such loss or deduction is

generally taken into account for purposes

of computing QBI in the year it is taken

into account in determining taxable income. These final regulations clarify this

point by amending §1.199A-3(b)(1)(iv)

(A) to specifically reference excess business losses disallowed by section 461(l)

and treated as a net operating loss carryover for the taxable year for purposes of

determining any net operating loss carryover under section 172(b) in subsequent

taxable years.

The Treasury Department and the IRS

are also aware that taxpayers and practitioners have questioned how the phase-in

rules apply when a taxpayer has a suspended or disallowed loss or deduction

from a Specified Service Trade or Business (SSTB). Whether an individual has

taxable income at or below the threshold

amount, within the phase-in range, or in

excess of the phase-in range, the determination of whether a suspended or disallowed loss or deduction attributable to an

SSTB is from a qualified trade or business

is made in the year the loss or deduction

is incurred. If the individual’s taxable income is at or below the threshold amount

in the year the loss or deduction is incurred, and such loss would otherwise be

QBI, the entire disallowed loss or deduction is treated as QBI from a separate trade

or business in the subsequent taxable year

in which the loss is allowed. If the individual’s taxable income is within the phase-in

range, then only the applicable percentage

of the disallowed loss or deduction is taken into account in the subsequent taxable

year. If the individual’s taxable income

exceeds the phase-in range, none of the

disallowed loss or deduction will be taken into account in the subsequent taxable

year. These final regulations clarify this

July 13, 2020

treatment and provide an example of a taxpayer with taxable income in the phase-in

range and a suspended loss from an SSTB.

The Treasury Department and the IRS

received one comment requesting further

clarification of the FIFO ordering rule.

The commenter questioned whether the

FIFO ordering rule should continue to

apply for losses incurred in taxable years

beginning on or after January 1, 2018.

The commenter also asked for clarification regarding whether the rule applied

on an annual basis such that each year is

tracked separately and FIFO is applied

for losses that are incurred each year or

whether FIFO applies such that there is a

single bucket of losses no matter the year

incurred. The commenter recommended

additional supporting worksheets or other

forms to assist in the calculation, particularly if every year must be tracked individually.

The Treasury Department and the IRS

have determined that in order to properly

calculate the deduction, it is necessary for

the FIFO rule to apply for losses incurred

in taxable years beginning on or after January 1, 2018, and that the rule must be

applied on an annual basis by category

(i.e., sections 465, 469, etc.). Accordingly,

these final regulations retain the FIFO rule

as proposed. The Treasury Department

and the IRS continue to consider whether

new worksheets or forms are necessary to

assist in the calculation.

The February 2019 Proposed Regulations also provide that if a loss or deduction is partially disallowed, QBI in the

year of disallowance must be reduced proportionately. These final regulations retain

this rule, but with slight modifications,

and provide examples.

II. RICs with Interests in REITs and PTPs

If a RIC has certain items of income

or gain, subchapter M of chapter 1 of the

Code provides rules under which a RIC

may pay dividends that a shareholder in

the RIC may treat in the same manner

(or a similar manner) as the shareholder would treat the underlying item of income or gain if the shareholder realized

it directly. Like the preamble to the February 2019 Proposed Regulations, this

preamble refers to this treatment as “conduit treatment.” The February 2019 Pro-

July 13, 2020

posed Regulations include rules providing conduit treatment for qualified REIT

dividends earned by a RIC. The Treasury

Department and the IRS received one

comment requesting that the proposed

rules providing this treatment be finalized. These final regulations adopt those

proposed rules.

The February 2019 Proposed Regulations do not provide conduit treatment

for qualified PTP income earned by a

RIC. Instead, the preamble to the February 2019 Proposed Regulations requested

comments on issues relating to whether

and how to provide conduit treatment for

qualified PTP income, including the treatment of items attributable to an SSTB of a

PTP allocated to a RIC and the treatment

of losses of a PTP allocated to a RIC.

The Treasury Department and the IRS received several comments addressing conduit treatment for qualified PTP income

earned by a RIC. Two commenters recommended that conduit treatment be extended to qualified PTP income earned by

RICs, excluding any items attributable to

SSTBs. Both commenters suggested that

any losses allocated to RICs from PTPs

could be carried forward by the RIC for

purposes of section 199A. Another commenter suggested methods by which RICs

could track, and pay dividends attributable to, an SSTB of a PTP.

Another commenter suggested that

RICs, particularly business development

companies that conduct lending activities, be allowed to pay “QBI dividends” to

their shareholders in cases where the RIC

had income from an activity that would

generate QBI if conducted by a partnership or an S corporation.

The Treasury Department and the IRS

continue to consider those comments and

evaluate whether it is appropriate and

practicable to provide conduit treatment

for qualified PTP income or other income

of a RIC to further the purposes of section

199A(b)(1)(B).

III. Special Rules for Trusts and Estates

Section 1.199A-6 provides guidance

that certain specified entities (including

trusts and estates) might need to compute

the section 199A deduction of the entity

and/or passthrough information to each

of its owners or beneficiaries, so they

may compute their section 199A deduction. Section 1.199A-6(d) contains special

rules for applying section 199A to trusts

and decedents’ estates.

Under §1.199A-6(d)(3)(ii), the QBI,

W–2 wages, UBIA of qualified property,

qualified REIT dividends, and qualified

PTP income of a trust or estate are allocated to each beneficiary and to the trust

or estate based on the relative proportion

of the trust’s or estate’s distributable net

income (DNI) for the taxable year that is

distributed or required to be distributed to

the beneficiary or is retained by the trust

or estate. Proposed §1.199A-6(d)(3)(iii)

further provides that a trust described in

section 663(c) with substantially separate

and independent shares for multiple beneficiaries will be treated as a single trust

for purposes of determining whether the

taxable income of the trust exceeds the

threshold amount.

The Treasury Department and the

IRS received comments requesting guidance on the interaction between section

199A and the separate share rule in section 663(c). In particular, the commenters requested guidance on the allocation

of QBI, W-2 wages, UBIA of qualified

property, qualified REIT dividends, and

qualified PTP income of a trust or estate to

beneficiaries and the trust or estate based

on DNI. The commenters noted differences in the allocation of overall DNI to

beneficiaries of a trust or estate under sections 643(a) and 663(c) and asked about

the allocation of these items in circumstances involving tax-exempt income and

charitable deductions, as well as situations

in which no DNI is allocated to a beneficiary. The commenters asserted that under

§1.663(c)-2(b)(5), deductions, including

the section 199A deduction, attributable

solely to one share are not available to any

other separate share of the trust or estate.

The commenters recommended that the

allocation of QBI, W-2 wages, UBIA of

qualified property, qualified REIT dividends, and qualified PTP income of a trust

or estate should be based on the portion

of such items that are attributable to the

income of each separate share. In addition, the commenters recommended that

§1.663(c)-2(b) be amended to clarify how

gross income not included in accounting income is allocated among separate

shares.

Bulletin No. 2020–29

After considering the comments and

studying the separate share rule in more

depth, the Treasury Department and the

IRS have clarified the separate share rule

in these final regulations to provide that,

in the case of a trust or estate described in

section 663(c) with substantially separate

and independent shares for multiple beneficiaries, the trust or estate will be treated

as a single trust or estate not only for purposes of determining whether the taxable

income of the trust or estate exceeds the

threshold amount but also in determining

taxable income, net capital gain, net QBI,

W-2 wages, UBIA of qualified property,

qualified REIT dividends, and qualified

PTP income for each trade or business of

the trust or estate, and computing the W-2

wage and UBIA of qualified property limitations. Further clarification of the separate share rule under section 663 is beyond

the scope of these final regulations, but the

Treasury Department and the IRS intend

to continue to study the issues raised by

the commenters. Accordingly, these final

regulations provide that the allocation

of these items to the separate shares of a

trust or estate described in section 663(c)

will be governed by the rules under section 663(e) and such guidance as may be

published in the Internal Revenue Bulletin

(see §601.601(d)(2)(ii)(b)).

Section 1.199A-6(d)(3)(v) of the February 2019 Proposed Regulations provides

rules under which the taxable recipient of

a unitrust or annuity amount from a charitable remainder trust described in section

664 can take into account QBI, qualified

REIT dividends, or qualified PTP income

for purpose of determining the recipient’s

section 199A deduction. The Treasury

Department and the IRS received no comments on these rules and these final regulations adopt these rules as proposed.

Special Analyses

I. Regulatory Planning and Review –

Economic Analysis

Executive Orders 13771, 13563, and

12866 direct agencies to assess costs and

benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize

net benefits (including potential economic, environmental, public health and safety

Bulletin No. 2020–29

effects, distributive impacts, and equity).

Executive Order 13563 emphasizes the

importance of quantifying both costs and

benefits of reducing costs, of harmonizing

rules, and of promoting flexibility.

These final regulations have been designated by the Office of Management

and Budget’s (OMB) Office of Information and Regulatory Affairs (OIRA) as

subject to review under Executive Order

12866 pursuant to the Memorandum of

Agreement (April 11, 2018) between the

Treasury Department and OMB regarding review of tax regulations. OIRA has

designated these final regulations as economically significant under section 1(c) of

the Memorandum of Agreement. Accordingly, OIRA has reviewed these final regulations. For purposes of Executive Order

13771 this rule is regulatory.

A. Background and Need for Final

Regulations

Section 199A of the TCJA provides

taxpayers other than corporations a deduction of up to 20 percent of QBI from

domestic businesses plus up to 20 percent

of their combined qualified REIT dividends and qualified publicly traded partnership income. Because the section 199A

deduction had not previously been available, regulations are necessary to provide

taxpayers with computational and definitional guidance regarding the application

of section 199A.

The Treasury Department and the IRS

previously issued the February 2019 Final Regulations regarding various items

related to the calculation of the section

199A deduction. However, the February

2019 Final Regulations did not address

treatment of REIT dividends received by

RICs. Because RICs are taxed as C corporations, dividends paid by RICs are generally ineligible for the section 199A deduction under the statute, which excludes C

corporation income from the definition of

QBI. However, the statute also directs the

Secretary to prescribe such regulations as

are necessary to carry out the purposes of

section 199A, including regulations for its

application in the case of tiered entities.

These final regulations establish rules under which RIC dividends associated with

qualified REIT dividends may be eligible

for a section 199A deduction.

In addition, these final regulations establish rules for the treatment of previously suspended losses in calculation of QBI

and rules for applying section 199A to

trusts and decedents’ estates.

B. Economic Analysis

1. Baseline

The analysis in this section compares

these final regulations (these regulations)

to a no-action baseline reflecting anticipated Federal income tax-related behavior

in the absence of these regulations.

2. Summary of Economic Effects

To assess the economic effects of these

regulations, the Treasury Department and

the IRS considered the economic effects

of (i) rules for the treatment of previously

suspended losses in calculation of QBI;

(ii) rules providing conduit treatment for

qualified REIT dividends earned by a

RIC; and (iii) rules for applying section

199A to trusts and decedents’ estates.

Regarding items (i) and (iii): These

regulations provide certainty and clarity

to taxpayers regarding terms and calculations necessary for taxpayers to determine

their section 199A deduction. In the absence of this clarity, the likelihood would

be exacerbated that different taxpayers

would hold different interpretations of

the tax treatment of previously suspended

losses or the application of section 199A

to trusts and decedents’ estates. These regulations help taxpayers to hold more similar interpretations of the tax treatment of

these items. In general, overall economic

performance is enhanced when individuals

and businesses face more uniform signals

about tax treatment. Certainty and clarity

over tax treatment also reduce compliance

costs for taxpayers.

The Treasury Department and the IRS

do not project meaningful changes in economic activity as a result of these provisions, relative to the no-action baseline.

Regarding item (ii): These regulations

provide that an individual who is a shareholder of a RIC that has an ownership

interest in a REIT may, for section 199A

purposes, treat certain dividends received

from a RIC in the same way the shareholder would treat dividends received directly

July 13, 2020

from the REIT. Specifically, under these

regulations RIC shareholders are generally eligible for the section 199A deduction

on their section 199A dividends. In the

absence of these regulations, dividends

received from a RIC that has an ownership interest in a REIT would not qualify

for the section 199A deduction while dividends received directly from that REIT

would generally qualify for the deduction.

Thus, in the absence of these regulations,

direct ownership of REITs is tax-advantaged relative to indirect ownership of

REITs through RICs even though the underlying economic activity is similar.

As a general principle, overall economic performance is improved to the extent

that the tax consequences of investment

through a financial intermediary (such as a

RIC) are equivalent to the tax consequences of direct investment. In the absence of

these regulations, a tax incentive would

arise for individuals to invest directly in

REITs rather than through RIC intermediaries. This would distort investment allocation relative to a tax-neutral treatment

of financial intermediaries, leading investors to make decisions based on differential tax treatment rather than purely based

on the value of investments. In particular,

it would likely cause investors to hold

less diversified portfolios.1 The Treasury

Department and the IRS therefore project

that, under these regulations, individual

investors seeking to invest in real estate

would in general hold more diversified

portfolios relative to the no-action baseline.

Another economic loss that would

likely arise in the absence of these regulations is due to the costs of acquiring information. RICs, including mutual funds

and exchange-traded funds, simplify

decision-making for investors by finding, indexing, and vetting REITs. This is

an efficient market organization due to

economies of scale in gathering relevant

information. In the absence of these regulations, individual investors face substantial incentives to invest directly in REITs

due to asymmetric tax treatment, and

face larger time costs to evaluate REIT

investment options than RICs. The same

level of investment can be achieved with

substantially less resource use if research

costs are incurred by RICs rather than individual investors, and therefore this rule

will lead to more efficient resource use in

making aggregate investment decisions.

On the basis of these effects, the Treasury Department and the IRS also project

that these regulations will lead investors,

on average, to hold more real estate in

their portfolios (relative to the no-action

baseline) and thus hold a smaller share of

investment in other industries.

The Treasury Department and the IRS

project that the economic effects of these

regulations will exceed $100 million per

year relative to the no-action baseline.

The compliance costs alone are estimated to be approximately $149 million (excluding any compliance cost savings), as

described in the Paperwork Reduction Act

section of these analyses. These compliance costs arise because the regulations

require a RIC to compute and report section 199A dividends to its shareholders in

order for them to benefit from the section

199A deduction on qualified REIT dividends earned by the RIC. In some sense,

these costs are optional since RICs that do

not pay section 199A dividends, either because they do not receive qualified REIT

dividends or because they choose not to

take on the additional record-keeping,

avoid these compliance costs entirely.

Nonetheless, we expect that many RICs

will choose to incur the compliance costs

to facilitate their shareholders’ section

199A deductions.

Though many RICs keep detailed records of their investment portfolios, these

regulations nonetheless create non-trivial administrative costs for any RICs that

wish to provide section 199A dividends to

their shareholders. However, this increase

in compliance costs may be accompanied

by a decrease in compliance costs for REITs who would otherwise see an influx of

individual investors holding direct interest

in REITs. The Treasury Department and

the IRS have not estimated this compliance cost savings.

Beyond any potential compliance

cost reduction, several other economic

benefits result from these regulations,

including those flowing from enhanced

financial diversification and reduced information-gathering costs. While we

have not attempted to quantify the economic benefits of these effects, we project that they are likely to be substantial as

well. We estimate that up to $6.0 billion

in REIT dividends accrued to individual

taxpayers through RICs in taxable year

2018. Of this, $5.6 billion went to taxpayers with positive taxable income, who

thus could potentially use section 199A

deductions. This corresponds to aggregate potential deductions of up to $1.1

billion (20 percent of $5.6 billion). Under

an assumption that the effective tax rate

for these investors was 30 percent, then

under the no-action baseline taxpayers

would theoretically be willing to incur

up to $336 million in economic costs in

order to receive the section 199A deduction on their income derived from REITs

that currently flows through RICs. Thus,

relative to the no-action baseline, these

regulations provide up to $336 million in

annual benefits by allowing investors to

avoid these costs.

Another way of gauging the potential

economic benefits from these regulations

is to consider them relative to the investment returns currently flowing to REIT

investors through RICs. If RIC intermediaries provide economic benefits (relative to direct ownership of REITs) equal

to five percent of investment returns, then

the benefits of these regulations relative

to the no-action baseline would be up to

$280 million (five percent of $5.6 billion),

assuming the same levels of economic activity as in taxable year 2018.

The Treasury Department and the IRS

project that more taxpayers will claim

the section 199A deduction under these

regulations, reducing government revenue relative to the no-action baseline. On

its own, this reduction in revenue itself

would affect the United States economy.

Either the deficit would increase or other

taxes would need to be raised. This effect

should be weighed against the enhanced

efficiency arising from the regulations.

We have not attempted to quantify these

effects. Similarly, we have not attempted

to quantify the efficiency effects of the

shift in investment away from other industries and toward real estate that may

result from these regulations, relative to

the no-action baseline.

RICs include mutual funds, which facilitate the diversification of an individual investor’s financial portfolio.

July 13, 2020

Bulletin No. 2020–29

3. Number of affected taxpayers.

The Treasury Department and the IRS

estimate that the rules regarding RICs as

financial intermediaries for REIT investors will affect up to 2,500 RICs and up

to 4.8 million individual tax units. These

estimates are derived from the universe

of taxable year 2018 administrative tax

records. For taxable year 2018, taxpayers

were able to rely on the February 2019

Proposed Regulations, which meant that

RICs could provide conduit treatment for

REIT dividends for section 199A purposes (as in these regulations). Accordingly,

2,500 entities that did not file Form 1120REIT issued at least one Form 1099-DIV

with section 199A dividends. For comparison, approximately 1,400 REITs issued

at least one Form 1099-DIV with section

199A dividends. Approximately 5.2 million tax units received at least one Form

1099-DIV with section 199A dividends

from the 2,500 non-REIT entities. Among

these tax units, roughly 4.8 million had

positive taxable income and therefore

could have potentially benefited from the

section 199A deduction.2

II. Paperwork Reduction Act (PRA)

The collection of information contained

in these regulations will be reviewed by

the Office of Management and Budget in

accordance with the Paperwork Reduction

Act of 1995 (44 U.S.C. 3507(d)) under

control number 1545–0110. The collection of information required by this regulation is in §1.199A‑3. The collection of

information in §1.199A-3 is required for

RICs that choose to report information regarding qualified REIT dividends to their

shareholders. It is necessary to report the

information to the IRS and relevant taxpayers to ensure that taxpayers properly report in accordance with the rules of

these regulations the correct amount of

deduction under section 199A. The collection of information in §1.199A-3 is satisfied by providing information about section 199A dividends as Form 1099-DIV

(OMB control number 1545-0110) and its

instructions may prescribe.

For purposes of the PRA, the reporting burden associated with §1.199A-3

will be reflected in the next revision to

Form 1099-DIV. The burden associated

with the information collection in the

regulation represents 1.567 million hours

and $149 million (2018 dollars) annually

to comply with the information collection requirement in the regulation. These

estimates capture both changes made by

the TCJA and those that arise out of these

regulations. The burden hours estimate

was derived from IRS’s legacy burden

model and is discussed in further detail

on Form 1099-DIV. The hourly rate is derived from the IRS’s office of Research,

Applied Analytics, and Statistics Business Taxpayer Burden model that relates

time and out-of-pocket costs of business

tax preparation, derived from survey

data, to assets and receipts of affected

taxpayers along with other relevant variables, and converted by the Treasury Department to $2017. The Treasury Department and the IRS request comment on all

aspects of information collection burdens

related to these regulations. Proposed revisions (if any) to these forms that reflect

the information collections contained

in these regulations will be made available for public comment at www.irs.gov/

draftforms and will not be finalized until

after the forms have been approved by

OMB under the PRA.

An agency may not conduct or sponsor,

and a person is not required to respond to,

a collection of information unless it displays a valid OMB control number.

III. Regulatory Flexibility Act

In accordance with the Regulatory

Flexibility Act (5 U.S.C. chapter 6), it is

hereby certified that this final rule will not

have a significant economic impact on a

substantial number of small entities.

The final rule is not likely to affect a

substantial number of small entities. Section 1.199A-3 applies to RICs that pay

section 199A dividends. Congress created

RICs to give small investors access to the

professional management and asset diversification that are available only with very

large investment portfolios. To insure appropriate non-tax regulation of these substantial investment portfolios, subchapter

M of chapter 1 of the Code requires that

such RICs must be eligible for registration, and must actually be registered with

the Securities and Exchange Commission

under the Investment Company Act of

1940. There are some small businesses

that are publicly traded, but most publicly traded businesses are not small entities

as defined by the Regulatory Flexibility

Act. Thus, the Treasury Department and

IRS expect that most RICs are not small

entities for purposes of the Regulatory

Flexibility Act. Accordingly, the Treasury

Department and the IRS have determined

that this Treasury decision will not affect a substantial number of small entities. Finally, no comments regarding the

economic impact of these regulations on

small entities were received.

Pursuant to section 7805(f) of the

Code, the notice of proposed rulemaking

preceding these regulations was submitted

to the Chief Counsel for Advocacy of the

Small Business Administration for comment on its impact on small business and

no comments were received.

Drafting Information

The principal authors of these regulations are Michael Y. Chin and Steven

Harrison, Office of the Associate Chief

Counsel (Financial Institutions and Products) and Robert Alinsky, Vishal Amin,

Margaret Burow, and Sonia Kothari,

Office of the Associate Chief Counsel

(Passthroughs and Special Industries).

However, other personnel from the Treasury Department and the IRS participated

in their development.

List of Subjects in 26 CFR Part 1

Income taxes, Reporting and recordkeeping requirements.

Amendments to the Regulations

Accordingly, 26 CFR part 1 is amended as follows:

For this analysis, entities are proxied by Employer Identification Numbers (EINs). EINs are tax identification numbers that do not perfectly align with the relevant entity concept. In particular, it is possible that one REIT may operate using multiple EINs, one to file its Form 1120-REIT and one to issue its Form 1099-DIVs. In this case, we will misclassify the 1099-issuing EIN

as a non-REIT. Therefore the estimates for the number of RICs, and the individuals receiving section 199A dividends from RICs, are upper bounds.

Bulletin No. 2020–29

July 13, 2020

PART 1—INCOME TAXES

Paragraph 1. The authority citation

for part 1 continues to read in part as follows:

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

Section 1.199A-3 also issued under 26

U.S.C. 199A(c)(4)(C) and (f)(4).

*****

Section 1.199A-6 also issued under 26

U.S.C. 199A(f)(1)(B) and (f)(4).

*****

Par. 2. Section 1.199A-0 is amended

by:

1. Adding entries for §1.199A-3(b)

(1)(iv)(A) through (C), (b)(1)(iv)(C)(1)

and (2), (b)(1)(iv)(D), (d), (d)(1) and

(2), (d)(2)(i) through (iii), (d)(2)(iii)(A)

and (B), (d)(3), (d)(3)(i) through (v), (d)

(4), (d)(4)(i) and (ii), (d)(5), and (e)(2)

(iii) and (iv).

2. Adding entries for §1.199A-6(d)(3)

(iii) and (v) and (e)(2)(iii) and (iv).

The additions read as follows:

§1.199A-0 Table of contents.

*****

§1.199A-3 Qualified business income, qualified REIT dividends, and

qualified PTP income.

*****

(b) * * *

(1) * * *

(iv) * * *

(A) In general.

(B) Partial allowance.

(1) In general.

(2) Specified service trades or businesses.

(D) Examples.

*****

(d) Section 199A dividends paid by a

regulated investment company.

(1) In general.

(2) Definition of section 199A dividend.

(i) In general.

(ii) Reduction in the case of excess reported amounts.

(iii) Allocation of excess reported

amount.

(A) In general.

(B) Special rule for noncalendar-year

RICs.

(3) Definitions.

July 13, 2020

(i) Reported section 199A dividend

amount.

(ii) Excess reported amount.

(iii) Aggregate reported amount.

(iv) Post-December reported amount.

(v) Qualified REIT dividend income.

(4) Treatment of section 199A dividends by shareholders.

(i) In general.

(ii) Holding period.

(5) Example.

(e) * * *

(2) * * *

(iii) Previously disallowed losses.

(iv) Section 199A dividends.

*****

§1.199A-6 Relevant passthrough entities (RPEs), publicly traded partnerships (PTPs), trusts, and estates.

*****

(d) * * *

(3) * * *

(iii) Separate shares.

*****

(v) Charitable remainder trusts.

*****

(e) * * *

(2) * * *

(iii) Separate shares.

(iv) Charitable remainder trusts.

Par. 3. Section 1.199A-3 is amended

by revising paragraph (b)(1)(iv) and adding paragraphs (d) and (e)(2)(iii) and (iv)

to read as follows:

§1.199A-3 Qualified business income, qualified REIT dividends, and

qualified PTP income.

*****

(b) * * *

(1) * * *

(iv) Previously disallowed losses—(A)

In general. Previously disallowed losses or deductions allowed in the taxable

year generally are taken into account for

purposes of computing QBI to the extent

the disallowed loss or deduction is otherwise allowed by section 199A. These

previously disallowed losses include, but

are not limited to losses disallowed under sections 461(l), 465, 469, 704(d), and

1366(d). These losses are used for purposes of section 199A and this section in

order from the oldest to the most recent

on a first-in, first-out (FIFO) basis and are

treated as losses from a separate trade or

business. To the extent such losses relate

to a PTP, they must be treated as a loss

from a separate PTP in the taxable year the

losses are taken into account. However,

losses or deductions that were disallowed,

suspended, limited, or carried over from

taxable years ending before January 1,

2018 (including under sections 465, 469,

704(d), and 1366(d)), are not taken into

account in a subsequent taxable year for

purposes of computing QBI.

(B) Partial allowance. If a loss or deduction attributable to a trade or business

is only partially allowed during the taxable year in which incurred, only the portion of the allowed loss or deduction that

is attributable to QBI will be considered

in determining QBI from the trade or business in the year the loss or deduction is

incurred. The portion of the allowed loss

or deduction attributable to QBI is determined by multiplying the total amount of

the allowed loss by a fraction, the numerator of which is the portion of the total

loss incurred during the taxable year that

is attributable to QBI and the denominator

of which is the amount of the total loss incurred during the taxable year.

deduction determined in year loss is incurred‑‑(1) In general. Whether a disallowed loss or deduction is attributable to a

trade or business, and otherwise meets the

requirements of this section, is determined

in the year the loss is incurred.

(2) Specified service trades or businesses. If a disallowed loss or deduction

is attributable to a specified service trade

or business (SSTB), whether an individual

has taxable income at or below the threshold amount as defined in §1.199A-1(b)

(12), within the phase-in range as defined

in §1.199A-1(b)(4), or in excess of the

phase-in range is determined in the year

the loss or deduction is incurred. If the individual’s taxable income is at or below

the threshold amount in the year the loss

or deduction is incurred, the entire disallowed loss or deduction must be taken

into account when applying paragraph (b)

(1)(iv)(A) of this section. If the individual’s taxable income is within the phase-in

range, then only the applicable percentage, as defined in §1.199A-1(b)(2), of

the disallowed loss or deduction is taken

into account when applying paragraph (b)

(1)(iv)(A) of this section. If the individual’s taxable income exceeds the phasein range, none of the disallowed loss or

Bulletin No. 2020–29

deduction will be taken into account in

applying paragraph (b)(1)(iv)(A) of this

section.

(D) Examples. The following examples

illustrate the provisions of this paragraph

(b)(1)(iv).

(1) Example 1. A is an unmarried individual and

a 50% owner of LLC, an entity classified as a partnership for Federal income tax purposes. In 2018,

A’s allocable share of loss from LLC is $100,000

of which $80,000 is negative QBI. Under section

465, $60,000 of the allocable loss is allowed in determining A’s taxable income. A has no other previously disallowed losses under section 465 or any

other provision of the Code for 2018 or prior years.

Because 80% of A’s allocable loss is attributable to

QBI ($80,000/$100,000), A will reduce the amount

A takes into account in determining QBI proportionately. Thus, A will include $48,000 of the allowed

loss in negative QBI (80% of $60,000) in determining A’s section 199A deduction in 2018. The remaining $32,000 of negative QBI is treated as negative

QBI from a separate trade or business for purposes

of computing the section 199A deduction in the year

the loss is taken into account in determining taxable

income as described in §1.199A-1(d)(2)(iii).

(2) Example 2. B is an unmarried individual

and a 50% owner of LLC, an entity classified as a

partnership for Federal income tax purposes. After

allowable deductions other than the section 199A

deduction, B’s taxable income for 2018 is $177,500.

In 2018, LLC has a single trade or business that is

an SSTB. B’s allocable share of loss is $100,000, all

of which is suspended under section 465. B’s allocable share of negative QBI is also $100,000. B has no

other previously disallowed losses under section 465

or any other provision of the Code for 2018 or prior years. Because the entire loss is suspended, none

of the negative QBI is taken into account in determining B’s section 199A deduction for 2018. Further, because the negative QBI is from an SSTB and

B’s taxable income before the section 199A deduction is within the phase-in range, B must determine

the applicable percentage of the negative QBI that

must be taken into account in the year that the loss

is taken into account in determining taxable income.

B’s applicable percentage is 100% reduced by 40%

(the percentage equal to the amount that B’s taxable

income for the taxable year exceeds B’s threshold amount ($20,000=$177,500-$157,500) over

$50,000). Thus, B’s applicable percentage is 60%.

Therefore, B will have $60,000 (60% of $100,000)

of negative QBI from a separate trade or business

to be applied proportionately to QBI in the year(s)

the loss is taken into account in determining taxable

income, regardless of the amount of taxable income

and how rules under §1.199A-5 apply in the year the

loss is taken into account in determining taxable income.

*****

(d) Section 199A dividends paid by a

regulated investment company—(1) In

general. If section 852(b) applies to a

regulated investment company (RIC) for

a taxable year, the RIC may pay section

Bulletin No. 2020–29

199A dividends, as defined in this paragraph (d).

(2) Definition of section 199A dividend—(i) In general. Except as provided

in paragraph (d)(2)(ii) of this section, a

section 199A dividend is any dividend or

part of such a dividend that a RIC pays

to its shareholders and reports as a section

199A dividend in written statements furnished to its shareholders.

(ii) Reduction in the case of excess reported amounts. If the aggregate reported

amount with respect to the RIC for any

taxable year exceeds the RIC’s qualified

REIT dividend income for the taxable

year, then a section 199A dividend is

equal to—

(A) The reported section 199A dividend amount; reduced by

(B) The excess reported amount that

is allocable to that reported section 199A

dividend amount.

(iii) Allocation of excess reported

amount—(A) In general. Except as provided in paragraph (d)(2)(iii)(B) of this

section, the excess reported amount (if

any) that is allocable to the reported section 199A dividend amount is that portion of the excess reported amount that

bears the same ratio to the excess reported

amount as the reported section 199A dividend amount bears to the aggregate reported amount.

(B) Special rule for noncalendar-year

RICs. In the case of any taxable year that

does not begin and end in the same calendar year, if the post-December reported amount equals or exceeds the excess

reported amount for that taxable year,

paragraph (d)(2)(iii)(A) of this section is

applied by substituting “post-December

reported amount” for “aggregate reported

amount,” and no excess reported amount

is allocated to any dividend paid on or before December 31 of that taxable year.

(3) Definitions. For purposes of paragraph (d) of this section—

(i) Reported section 199A dividend

amount. The term reported section 199A

dividend amount means the amount of a

dividend distribution reported to the RIC’s

shareholders under paragraph (d)(2)(i) of

this section as a section 199A dividend.

(ii) Excess reported amount. The term

excess reported amount means the excess

of the aggregate reported amount over the

RIC’s qualified REIT dividend income for

the taxable year.

(iii) Aggregate reported amount. The

term aggregate reported amount means

the aggregate amount of dividends reported by the RIC under paragraph (d)(2)(i) of

this section as section 199A dividends for

the taxable year (including section 199A

dividends paid after the close of the taxable year and described in section 855).

(iv) Post-December reported amount.

The term post-December reported amount

means the aggregate reported amount

determined by taking into account only

dividends paid after December 31 of the

taxable year.

(v) Qualified REIT dividend income.

The term qualified REIT dividend income

means, with respect to a taxable year of

a RIC, the excess of the amount of qualified REIT dividends, as defined in paragraph (c)(2) of this section, includible in

the RIC’s taxable income for the taxable

year over the amount of the RIC’s deductions that are properly allocable to such

income.

(4) Treatment of section 199A dividends

by shareholders—(i) In general. For purposes of section 199A, and §§1.199A-1

through 1.199A-6, a section 199A dividend is treated by a taxpayer that receives

the section 199A dividend as a qualified

REIT dividend.

(ii) Holding period. Paragraph (d)(4)

(i) of this section does not apply to any

dividend received with respect to a share

of RIC stock—

(A) That is held by the shareholder for

45 days or less (taking into account the

principles of section 246(c)(3) and (4))

during the 91-day period beginning on

the date which is 45 days before the date

on which the share becomes ex-dividend

with respect to such dividend; or

(B) To the extent that the shareholder is

under an obligation (whether pursuant to

a short sale or otherwise) to make related

payments with respect to positions in substantially similar or related property.

(5) Example. The following example

illustrates the provisions of this paragraph

(d).

(i) X is a corporation that has elected to be a RIC.

For its taxable year ending March 31, 2021, X has

$25,000x of net long-term capital gain, $60,000x

of qualified dividend income, $25,000x of taxable

interest income, $15,000x of net short-term capital

gain, and $25,000x of qualified REIT dividends.

July 13, 2020

X has $15,000x of deductible expenses, of which

$3,000x is allocable to the qualified REIT dividends.

On December 31, 2020, X pays a single dividend of

$100,000x, and reports $20,000x of the dividend as

a section 199A dividend in written statements to its

shareholders. On March 31, 2021, X pays a dividend

of $35,000x, and reports $5,000x of the dividend as

a section 199A dividend in written statements to its

shareholders.

(ii) X’s qualified REIT dividend income under

paragraph (d)(3)(v) of this section is $22,000x,

which is the excess of X’s $25,000x of qualified

REIT dividends over $3,000x in allocable expenses. The reported section 199A dividend amounts for

the December 31, 2020, and March 31, 2021, distributions are $20,000x and $5,000x, respectively.

For the taxable year ending March 31, 2021, the aggregate reported amount of section 199A dividends

is $25,000x, and the excess reported amount under

paragraph (d)(3)(ii) of this section is $3,000x. Because X is a noncalendar-year RIC and the post-December reported amount of $5,000x exceeds the excess reported amount of $3,000x, the entire excess

reported amount is allocated under paragraphs (d)

(2)(iii)(A) and (B) of this section to the reported

section 199A dividend amount for the March 31,

2021, distribution. No portion of the excess reported amount is allocated to the reported section 199A

dividend amount for the December 31, 2020, distribution. Thus, the section 199A dividend on March

31, 2021, is $2,000x, which is the reported section

199A dividend amount of $5,000x reduced by the

$3,000x of allocable excess reported amount. The

section 199A dividend on December 31, 2020, is

the $20,000x that X reports as a section 199A dividend.

(iii) Shareholder A, a United States person, receives a dividend from X of $100x on December 31,

2020, of which $20x is reported as a section 199A

dividend. If A meets the holding period requirements

in paragraph (d)(4)(ii) of this section with respect to

the stock of X, A treats $20x of the dividend from X

as a qualified REIT dividend for purposes of section

199A for A’s 2020 taxable year.

(iv) A receives a dividend from X of $35x on

March 31, 2021, of which $5x is reported as a section 199A dividend. Only $2x of the dividend is a

section 199A dividend. If A meets the holding period

requirements in paragraph (d)(4)(ii) of this section

with respect to the stock of X, A may treat the $2x

section 199A dividend as a qualified REIT dividend

for A’s 2021 taxable year.

(e) * * *

(2) * * *

(iii) Previously disallowed losses. The

provisions of paragraph (b)(1)(iv) of this

section apply to taxable years beginning

after August 24, 2020. Taxpayers may

choose to apply the rules in paragraph (b)

(1)(iv) of this section for taxable years

beginning on or before August 24, 2020,

so long as the taxpayers consistently apply the rules in paragraph (b)(1)(iv) of this

section for each such year.

July 13, 2020

(iv) Section 199A dividends. The provisions of paragraph (d) of this section apply

to taxable years beginning after August

24, 2020. Taxpayers may choose to apply

the rules in paragraph (d) of this section

for taxable years beginning on or before

August 24, 2020, so long as the taxpayers

consistently apply the rules in paragraph

(d) of this section for each such year.

Par. 4. Section 1.199A-6 is amended

by adding paragraphs (d)(3)(iii) and (v)

and (e)(2)(iii) and (iv) to read as follows:

§1.199A-6 Relevant passthrough entities (RPEs), publicly traded partnerships (PTPs), trusts, and estates.

*****

(d) * * *

(3) * * *

(iii) Separate shares. In the case of a

trust or estate described in section 663(c)

with substantially separate and independent shares for multiple beneficiaries,

such trust or estate will be treated as a

single trust or estate for purposes of determining whether the taxable income of

the trust or estate exceeds the threshold

amount; determining taxable income, net

capital gain, net QBI, W-2 wages, UBIA

of qualified property, qualified REIT dividends, and qualified PTP income for each

trade or business of the trust and estate;

and computing the W-2 wage and UBIA

of qualified property limitations. The allocation of these items to the separate

shares of a trust or estate will be governed

by the rules under §§1.663(c)-1 through

1.663(c)-5, as they may be adjusted or

clarified by publication in the Internal

Revenue Bulletin (see §601.601(d)(2)(ii)

(b) of this chapter).

*****

(v) Charitable remainder trusts. A

charitable remainder trust described in

section 664 is not entitled to and does

not calculate a section 199A deduction,

and the threshold amount described in

section 199A(e)(2) does not apply to the

trust. However, any taxable recipient of a

unitrust or annuity amount from the trust

must determine and apply the recipient’s

own threshold amount for purposes of

section 199A taking into account any

annuity or unitrust amounts received

from the trust. A recipient of a unitrust

or annuity amount from a trust may

take into account QBI, qualified REIT

dividends, or qualified PTP income for

purposes of determining the recipient’s

section 199A deduction for the taxable

year to the extent that the unitrust or annuity amount distributed to such recipient consists of such section 199A items

under §1.664-1(d). For example, if a

charitable remainder trust has investment income of $500, qualified dividend

income of $200, and qualified REIT dividends of $1,000, and distributes $1,000

to the recipient, the trust would be treated as having income in two classes within the category of income, described in

§1.664-1(d)(1)(i)(a)(1), for purposes of

§1.664-1(d)(1)(ii)(b). Because the annuity amount first carries out income in the

class subject to the highest income tax

rate, the entire annuity payment comes

from the class with the investment income and qualified REIT dividends.

Thus, the charitable remainder trust

would be treated as distributing a proportionate amount of the investment income ($500/(1,000+500)*1,000 = $333)

and qualified REIT dividends ($1000/

(1,000+500)*1000 = $667) because the

investment income and qualified REIT

dividends are taxed at the same rate and

within the same class, which is higher

than the rate of tax for the qualified dividend income in a separate class. The

charitable remainder trust in this example would not be treated as distributing

any of the qualified dividend income

until it distributed all the investment

income and qualified REIT dividends

(more than $1,500 in total) to the recipient. To the extent that a trust is treated

as distributing QBI, qualified REIT dividends, or qualified PTP income to more

than one unitrust or annuity recipient in

the taxable year, the distribution of such

income will be treated as made to the recipients proportionately, based on their

respective shares of total QBI, qualified

REIT dividends, or qualified PTP income distributed for that year. The trust

allocates and reports any W-2 wages or

UBIA of qualified property to the taxable recipient of the annuity or unitrust

interest based on each recipient’s share

of the trust’s total QBI (whether or not

distributed) for that taxable year. Accordingly, if 10 percent of the QBI of

a charitable remainder trust is distribut-

Bulletin No. 2020–29

ed to the recipient and 90 percent of the

QBI is retained by the trust, 10 percent

of the W-2 wages and UBIA of qualified property is allocated and reported to

the recipient and 90 percent of the W-2

wages and UBIA of qualified property is

treated as retained by the trust. However, any W-2 wages retained by the trust

cannot be used to compute W-2 wages

in a subsequent taxable year for section 199A purposes. Any QBI, qualified

REIT dividends, or qualified PTP income of the trust that is unrelated business taxable income is subject to excise

tax and that tax must be allocated to the

corpus of the trust under §1.664-1(c).

*****

Bulletin No. 2020–29

(e) * * *

(2) * * *

(iii) Separate shares. The provisions

of paragraph (d)(3)(iii) of this section apply to taxable years beginning after August 24, 2020. Taxpayers may choose to

apply the rules in paragraph (d)(3)(iii) of

this section for taxable years beginning

on or before August 24, 2020, so long as

the taxpayers consistently apply the rules

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

each such year.

(iv) Charitable remainder trusts. The

provisions of paragraph (d)(3)(v) of this

section apply to taxable years beginning

after August 24, 2020. Taxpayers may

choose to apply the rules in paragraph (d)

of this section for taxable years beginning

on or before August 24, 2020, so long as

the taxpayers consistently apply the rules

in paragraph (d)(3)(v) of this section for

each such year.

Sunita Lough,

Deputy Commissioner for Services

and Enforcement.

Approved: May 12, 2020.

David J. Kautter,

Assistant Secretary of the Treasury

(Tax Policy).

(Filed by the Office of the Federal Register on June

24, 2020, 8:45 a.m., and published in the issue of the

Federal Register for June 25, 2020, 85 F.R. 38060)

July 13, 2020

Part III

Relief for Taxpayers

Affected by Ongoing

Coronavirus Disease

Pandemic, Related to Sport

Fishing Equipment and

Bows and Arrows Excise

Tax Filing and Payment

Deadlines

Notice 2020-48

SECTION 1. PURPOSE

On March 13, 2020, the President of

the United States issued an emergency

declaration under the Robert T. Stafford

Disaster Relief and Emergency Assistance

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

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

the Treasury “to provide relief from tax

deadlines to Americans who have been

adversely affected by the COVID-19

emergency, as appropriate, pursuant to 26

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

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

Secretary of the Treasury has determined

to be affected by the COVID-19 emergency.

SECTION 2. BACKGROUND

Section 7508A of the Code provides

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

acts under the internal revenue laws for

a taxpayer determined by the Secretary

to be affected by a federally declared disaster as defined in section 165(i)(5)(A).

Pursuant to section 7508A(a), a period

of up to one year may be disregarded in

determining whether the performance of

certain acts is timely under the internal

revenue laws.

Section 40.0-1(a) of the Excise Tax

Procedural Regulations applies the part 40

July 13, 2020

procedural regulations to various excise

taxes including those imposed on sporting

goods by chapter 32, subchapter D, part

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

(1) provides that the return of any tax to

which part 40 applies must be made on

Form 720 (Quarterly Federal Excise Tax

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

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

on Form 720.

The federal sporting goods excise

taxes are imposed by section 4161(a)

on sport fishing equipment and by section 4161(b) on bows and arrows. These

taxes are reported on Form 720, Part II,

IRS Numbers: 41 (sport fishing equipment (other than fishing rods and fishing poles)), 110 (fishing rods and fishing

poles), 42 (electric outboard motors), 114

(fishing tackle boxes), 44 (bows, quivers,

broadheads, and points), and 106 (arrow

shafts) (hereafter the “sport fishing and

archery equipment numbers”). Under

section 40.6011(a)-1(a), an entry for each

IRS Number on Form 720 constitutes a

separate return. The Form 720 due on

July 31, 2020, covers the second calendar quarter (April, May, June) of the year

2020.

SECTION 3. GRANT OF RELIEF

Any person (as defined in section

7701(a)(1) of the Code) with a federal

sporting goods excise tax payment due

and the requirement to file a return under

the sport fishing and archery equipment

numbers on Part II of Form 720, on July

31, 2020, is determined to be affected by

the COVID-19 emergency for purposes of

the relief described in this section 3 (Affected Taxpayer).

For an Affected Taxpayer, the July 31,

2020, due date for filing Form 720 for

the sport fishing and archery equipment

numbers and making corresponding federal sporting goods excise tax payments

is automatically postponed to October

31, 2020. This relief is automatic. Affected Taxpayers do not have to call the IRS,

file any extension forms, or send letters

or other documents to receive this relief.

An Affected Taxpayer may file a Form

720 for excise taxes and pay the corresponding excise taxes on sport fishing

and archery equipment by the normal

due date (July 31, 2020) if the Affected

Taxpayer so chooses. An Affected Taxpayer who takes advantage of this postponement should file only one Form 720

for the sport fishing and archery equipment numbers by the postponed deadline

of October 31, 2020, on an IRS Number

line if the taxpayer has excise tax liability

for the tax corresponding to that Number

and this Notice postpones the payment of

that tax (in other words, avoid duplicate

filings).

Any Affected Taxpayer that, pursuant to this Notice, files its second quarter

Form 720 for the sport fishing and archery

equipment numbers after July 31, 2020,

must adhere to the following instructions:

• Any Affected Taxpayer that wants to

take advantage of the postponement

must file a paper Form 720, rather

than an electronic Form 720, to file its

return for excise taxes on sport fishing

and archery equipment after July 31,

2020. In addition, an Affected Taxpayer must write “Notice 2020-48”

on the top-center of the Form 720 on

which its excise taxes on sport fishing

and archery equipment are reported

after July 31, 2020.

• An Affected Taxpayer may also choose

to file a Form 720 for excise taxes on

sport fishing and archery equipment by

the normal due date (July 31, 2020).

For taxpayers who do not want to take

advantage of this filing deadline postponement, a return filed by July 31,

2020, may be filed electronically.

• If any Affected Taxpayer that wants to

take advantage of this postponement is

required to file a Form 720 for excise

taxes other than for sport fishing and

archery equipment on July 31, 2020,

the Affected Taxpayer must file the

Form 720 by the normal due date for

those taxes (July 31, 2020) with the

sport fishing and archery lines blank.

The Affected Taxpayer then must file

a paper Form 720 by October 31,

2020, that reports the sport fishing

and archery excise taxes subject to

Bulletin No. 2020–29

the relief provided by this Notice. In

such a situation, the first Form 720

(reporting excise taxes other than on

sport fishing and archery equipment)

may be filed electronically; however,

the second Form 720 (reporting excise taxes on sport fishing and archery

equipment) must be filed on paper and

must be labeled “Notice 2020-48” in

the top-center of the Form 720.

• Any Affected Taxpayer that wants to

take advantage of the postponement

must not combine second quarter (the

calendar quarter containing April,

May, and June 2020) and third quarter

(the calendar quarter containing July,

August, and September 2020) excise

taxes onto one Form 720. Such Affected Taxpayers must file separate Forms

720 for the second and third quarters

by October 31, 2020. Moreover, second and third quarter Form 720 excise

tax payments must be made separately,

and Affected Taxpayers should clearly

designate payments with respect to the

type of tax and tax period for which

the payment is made.

As a result of the postponement of the

July 31, 2020, due date for timely filing

Forms 720 for the excise taxes on sport

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

October 31, 2020, the period beginning

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

calculation of any interest, penalty, or

addition to tax for failure to file a Form

720 for the excise taxes on sport fishing

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

and additions to tax with respect to such

postponed Forms 720 and payments will

begin to accrue on November 1, 2020, if

the taxes are then unpaid or the Forms are

not timely filed.

Guidance on Waiver of

2020 Required Minimum

Distributions

SECTION 4. CONTACT

INFORMATION

Section 401(a)(9) of the Code requires

a stock bonus, pension, or profit-sharing plan described in § 401(a) (or an annuity contract described in § 403(a)) to

make minimum distributions starting by

the required beginning date (as well as

minimum distributions to beneficiaries

For further information regarding this

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

(not a toll-free number).

Notice 2020–51

I. PURPOSE

This notice provides guidance relating

to the waiver of 2020 required minimum

distributions, described in § 401(a)(9) of

the Internal Revenue Code (Code), from

certain retirement plans under section

2203 of the Coronavirus Aid, Relief, and

Economic Security (CARES) Act, Pub.L.

116-136, 134 Stat. 281 (2020). In particular, the notice:

• permits rollovers of waived required

minimum distributions (RMDs) and

certain related payments, including

an extension of the 60-day rollover

period for certain distributions to August 31, 2020;

• answers questions relating to the

waiver of 2020 RMDs; and

• provides a sample plan amendment

that, if adopted, would provide participants a choice whether to receive

waived RMDs and certain related

payments.

The notice also provides transition relief for plan administrators and payors in

connection with the change in required

beginning date for RMDs under § 401(a)

(9) of the Code pursuant to section 114

of the Setting Every Community Up for

Retirement Enhancement Act of 2019

(SECURE Act), enacted on December

20, 2019, as Division O of the Further

Consolidated Appropriations Act of

2019, Pub. L. 116-94, 133 Stat. 2534

(2019).

II. BACKGROUND

if the employee dies before the required

beginning date). Individual Retirement

Accounts and Individual Retirement Annuities (IRAs) described in § 408(a) and

§ 408(b), § 403(b) plans, and eligible deferred compensation plans under § 457(b),

are also subject to the rules of § 401(a)

(9) pursuant to §§ 408(a)(6) and (b)(3),

403(b)(10), and 457(d)(2), respectively,

and the regulations under those sections.

For a defined contribution plan, under §

1.401(a)(9)-5, Q&A-1, the RMD generally is determined by dividing the employee’s account balance by a factor that is

based on life expectancy.

In general, § 72(t) imposes a 10-percent

additional tax on distributions made from

a plan described in § 401(a), § 403(a), or

§ 403(b) to an employee before the employee attains age 59 ½, or from an IRA

to the IRA owner before the owner attains

age 59½. However, pursuant to § 72(t)(2)

(A)(iv), certain individuals receiving distributions that are part of a series of substantially equal periodic payments from

a plan or an IRA are exempted from this

10-percent additional tax. Notice 89–25,

Q&A–12, 1989–1 C.B. 662, as modified

by Rev. Rul. 2002–62, 2002–2 C.B. 710,

provides three calculation methods for

determining whether a distribution is part

of a series of substantially equal periodic payments under § 72(t)(2)(A)(iv). One

of these calculation methods, the RMD

method, uses rules similar to those under

§ 401(a)(9) to determine the amount of the

periodic payments.

Section 402(c) generally provides that

the payment of any portion of an employee’s interest in a qualified trust to the employee or the employee’s surviving spouse

in an eligible rollover distribution is not

includible in gross income if the distribution is rolled over to an eligible retirement

plan described in § 402(c)(8) no later than

the 60th day following the day of receipt.

An eligible rollover distribution is defined

in § 402(c)(4) as a distribution to an employee of all or any portion of the balance

to the credit of the employee in a qualified trust other than a distribution that is:

(A) one of a series of substantially equal

periodic payments made over a specified

period1; (B) a distribution required under

Under § 1.402(c)-2, Q&A-5, whether a series of payments is a series of substantially equal periodic payments for purposes of § 402(c)(4)(A) is determined at the time payments begin and by

following the principles of § 72(t)(2)(A)(iv). As a result, a series of distributions, each of which is equal to an employee’s RMD, is treated as a series of substantially equal periodic payments

for purposes of § 402(c)(4)(A).

Bulletin No. 2020–29

July 13, 2020

§ 401(a)(9)2; or (C) a distribution made on

account of the employee’s hardship. Section 402(c)(3)(B) provides that the Secretary may waive the 60-day rollover deadline under certain circumstances. Section

402(c)(11) provides for the direct rollover

of a deceased employee’s interest in a

qualified trust to an inherited IRA established for the deceased employee’s nonspouse designated beneficiary. Rules similar to those described in this paragraph

apply to § 403(a) annuity plans, § 403(b)

plans, and § 457 eligible governmental

plans. (See §§ 403(a)(4)(B), 403(b)(8)(B),

and 457(e)(16)(B).)

Section 408(d)(3) generally provides

that an amount distributed from an IRA to

the IRA owner, or to the surviving spouse

of the IRA owner, is not included in gross

income if the distribution is rolled over to

an eligible retirement plan no later than

the 60th day following the day of receipt.

A distribution of an after-tax amount may

only be rolled over to another IRA. Section 408(d)(3)(B) provides that an IRA

owner may roll over only one IRA distribution in a 12-month period, and § 408(d)

(3)(E) provides that an RMD may not be

rolled over. Section 408(d)(3)(I) provides

that the Secretary may waive the 60-day

rollover deadline under certain circumstances.

Section 114 of the SECURE Act

amended § 401(a)(9) of the Code to

change the required beginning date applicable to § 401(a) plans and other eligible

retirement plans, including IRAs. The new

required beginning date for an employee or IRA owner is generally April 1 of

the calendar year following the calendar

year in which the individual attains age 72

(rather than April 1 of the calendar year

following the calendar year in which the

individual attains age 70½) and the new

required beginning date applies to distributions required to be made after December 31, 2019, with respect to individuals

who attain age 70½ after that date.

Section 2203(a) of the CARES Act

added § 401(a)(9)(I) to the Code. Section

401(a)(9)(I)(i) provides for a waiver of

RMDs for defined contribution plans and

IRAs for 2020. Section 401(a)(9)(I)(ii)

provides that this waiver also applies to

the 2019 RMD for an individual who has

a required beginning date of April 1, 2020,

that was not paid in 2019 (and therefore

would have been due to be paid between

January 1, 2020 and April 1, 2020). Section 401(a)(9)(I)(iii)(II) provides that if

the rule described in § 401(a)(9)(B)(ii) applies to a beneficiary (under which the entire amount of the plan must be distributed

within 5 years of the participant’s death),

then the 5-year period is determined without regard to 2020. Section 401(a)(9)(I)

(iii)(I) provides that an individual’s required beginning date is determined without regard to § 401(a)(9)(I) for purposes

of applying § 401(a)(9) for calendar years

after 2020.

Section 2203(b) of the CARES Act

amended § 402(c)(4) of the Code to provide that any amount distributed during

2020 that is an eligible rollover distribution, but would not have been an eligible rollover distribution had § 401(a)(9)

applied during 2020, is not treated as an

eligible rollover distribution for purposes of § 401(a)(31) (relating to direct and

automatic rollovers of eligible rollover

distributions), § 402(f) (relating to notices

to recipients of eligible rollover distributions), and § 3405(c) (relating to mandatory 20-percent withholding on eligible

rollover distributions).

Section 2203(c) of the CARES Act

provides that a plan or contract may operate in accordance with an expected plan

or contract amendment relating to the

changes made by section 2203, provided

the plan or contract amendment is adopted

no later than the last day of the first plan

year beginning in 2022 (or, in the case

of a governmental plan, 2024). Section

2203(c) of the CARES Act also provides

that a plan or contract will not fail to satisfy § 411(d)(6) of the Code by reason of

such an amendment, except as provided

by the Secretary of the Treasury.

The RMD waiver provided by section 2203 of the CARES Act is similar

to the 2009 RMD waiver provided by

section 201 of the Worker, Retiree, and

Employer Recovery Act of 2008 (WRERA), Pub. L. 110-458, 122 Stat. 5092

(2008). Notice 2009-82, 2009-41 I.R.B.

491, provided transition relief and guidance related to section 201 of WRERA.

This notice provides transition relief and

guidance that is similar to that provided

in Notice 2009-82, but takes into consideration the different circumstances

for the waiver in 2020 compared to the

waiver in 2009.

III. TRANSITION GUIDANCE

A. Payor and plan administrator guidance related to SECURE Act change to

required beginning date. A distribution

from a plan made during 2020 to a participant who will attain age 70½ in 2020

that would have been an RMD but for the

change in the required beginning date under section 114 of the SECURE Act is not

required to be treated as an eligible rollover distribution for purposes of §§ 401(a)

(31), 402(f), and 3405(c). Thus, for example, if a participant who attains age 70½

in 2020 received a distribution in January

2020, and part of the distribution was not

treated as an eligible rollover distribution

because it was improperly characterized

as an RMD, then, pursuant to the relief in

this paragraph III.A, the payor and plan

administrator will not be considered as

having failed to satisfy the requirements

of §§ 401(a)(31), 402(f) and 3405(c)

merely because of that treatment.

B. Rollover guidance for plan participants. Consistent with the legislative intent with respect to section 2203 of the

CARES Act to permit taxpayers to avoid

taking RMDs in 2020, the Department of

the Treasury (Treasury Department) and

the IRS are providing relief to allow taxpayers who receive certain distributions to

roll them into an eligible retirement plan

(even if the distribution normally would

be treated as part of a series of substantially equal periodic payments). Specifically,

the following distributions from a plan

(other than a defined benefit plan) may

be rolled over, provided the other rules of

§ 402(c) are satisfied (and regardless of

whether the distributions would otherwise

be made as part of a series of substantially

equal periodic payments):

Under § 1.402(c)-2, Q&A-7, in determining which amounts are treated as eligible rollover distributions, if a minimum distribution is required for a calendar year, the amounts distributed

during that calendar year are treated as RMDs, to the extent that the total required minimum distribution under § 401(a)(9) for the calendar year has not been satisfied.

July 13, 2020

Bulletin No. 2020–29

distributions to a plan participant

paid in 2020 (or paid in 2021 for

the 2020 calendar year in the case

of an employee who has a required

beginning date of April 1, 2021) if

the payments equal the amounts that

would have been RMDs in 2020 (or

for 2020), but for section 2203 of the

CARES Act (2020 RMDs), or are one

or more payments (that include the

2020 RMDs) in a series of substantially equal periodic payments made

at least annually and expected to last

for the life (or life expectancy) of the

participant, the joint lives (or joint

life expectancies) of the participant

and the participant’s designated beneficiary, or for a period of at least 10

years; and

2. for a plan participant with a required

beginning date of April 1, 2021, distributions that are paid in 2021 that

would have been an RMD for 2021

but for section 2203 of the CARES

Act (as described in Q&A-5 of section V of this notice).

C. Extension of 60-day deadline for

rollover of certain distributions. To assist plan participants who have already

received distributions in 2020, the Treasury Department and the IRS, pursuant

to § 402(c)(3)(B), are extending the 60day rollover period for any payments described in section III.A and section III.B

of this notice so that the deadline for rolling over such a payment will not be before

August 31, 2020. For example, if a participant received a single-sum distribution in

January 2020, part of which was treated as

ineligible for rollover because it was considered an RMD, that participant will have

until August 31, 2020, to roll over that part

of the distribution. In addition, the Treasury Department and the IRS, pursuant to

§ 408(d)(3)(I), are extending the 60-day

rollover period for IRA distributions in

2020 that would have been an RMD in

2020 but for section 2203 of the CARES

Act or section 114 of the SECURE Act,

so that the deadline for rolling over such

distributions will not be before August 31,

2020.

D. Permitted repayments of RMDs

previously distributed from an IRA. In the

case of an IRA owner or beneficiary who

has already received a distribution of an

amount that would have been an RMD in

Bulletin No. 2020–29

2020 but for section 2203 of the CARES

Act or section 114 of the SECURE Act,

the recipient may repay the distribution

to the distributing IRA, even if the repayment is made more than 60 days after the

distribution, provided the repayment is

made no later than August 31, 2020. The

repayment will be treated as a rollover for

purposes of § 408(d)(3) of the Code, but

will not be treated as a rollover for purposes of the one rollover per 12-month

period limitation in § 408(d)(3)(B) and

the restriction on rollovers for nonspousal

beneficiaries in § 408(d)(3)(C).

IV. PLAN AMENDMENTS

The Appendix to this notice provides a

sample plan amendment for defined contribution plans that plan sponsors may

adopt to implement § 401(a)(9)(I). The

sample amendment provides participants

and beneficiaries the choice between receiving and not receiving distributions

described in section III.B of this notice.

The sample plan amendment has no impact on other distribution provisions. For

example, a 75-year-old retiree’s request to

have her remaining plan account balance

distributed in 2020 in a lump sum, or in

five approximately equal annual installments over a period that includes 2020,

would not be affected by the amendment.

The format of the sample plan amendment generally follows the design of

pre-approved plans that employ a “basic

plan document” and an “adoption agreement.” Thus, the sample plan amendment

includes language designed for inclusion

in a basic plan document and language

designed for inclusion in an adoption

agreement to allow the employer to select

among options related to the application of

the basic plan document provision. Sponsors of plans that do not use an adoption

agreement (including employers using individually designed plans) should modify

the format of the amendment to incorporate the desired options in the terms of the

amendment.

The first option provides that the default that applies in the absence of a participant’s or beneficiary’s election is to

pay out distributions that include 2020

RMDs, and the second option provides

that the default that applies in the absence

of a participant’s or beneficiary’s election

is to suspend distributions that include

2020 RMDs. An employer may choose

either option, regardless of current plan

language. However, an employer must select one of these options and must include

in the adoption agreement the date as of

which the plan begins operating in accordance with these terms.

The sample plan amendment also provides an employer three options with respect to the availability of direct rollover

choices for distributions in 2020, with the

default being that the plan offers a direct

rollover option only for pre-CARES Act

eligible rollover distributions (that is, a direct rollover option is not offered for 2020

RMDs or for amounts that may be rolled

over solely due to the rollover guidance

provided in section III.B of this notice).

The first option provides for the availability of a direct rollover of only 2020 RMDs.

The second option provides for the availability of a direct rollover of 2020 RMDs

and of other amounts that may be rolled

over pursuant to the rollover guidance

provided in section III.B of this notice (the

latter amounts referred to as “Extended

2020 RMDs” in the sample amendment).

The third option provides for the availability of a direct rollover of the entire amount

of a distribution but only if the distribution consists of part or all of a 2020 RMD

amount and an additional amount that is

an eligible rollover distribution without

regard to § 401(a)(9)(I).

The adoption of the sample plan

amendment (as modified, if necessary, to

conform to the plan’s terms and administrative procedures) will not result in the

loss of reliance on a favorable opinion,

advisory, or determination letter. Also,

an employer’s adoption of one of the options under the sample plan amendment

(as modified, if necessary, to conform to

the plan’s terms and administrative procedures) will not cause the plan to fail to be

a pre-approved plan.

Under section 2203(c) of the CARES

Act, any plan amendment pursuant to section 2203 must be adopted no later than the

last day of the first plan year beginning on

or after January 1, 2022 (January 1, 2024,

for governmental plans), and must reflect

the operation of the plan beginning with

the effective date of the plan amendment.

The timely adoption of the amendment

must be evidenced by a written document

July 13, 2020

that is signed and dated by the employer (including an adopting employer of a

pre-approved plan).

Employers may adopt other amendments pursuant to section 2203 of the

CARES Act. However, the Treasury Department and the IRS are exercising their

authority under section 2203(c) of the

CARES Act to deny § 411(d)(6) relief for

a plan amendment that eliminates an optional form of benefit. Thus, for example,

if plan language provides for a distribution of amounts equal to the 2020 RMD to

a participant or beneficiary without regard

to § 401(a)(9)(I), then an amendment to

eliminate the right to take that distribution

would violate § 411(d)(6)(B). Similarly,

if plan language automatically suspends a

distribution of amounts equal to the 2020

RMD to a participant or beneficiary pursuant to § 401(a)(9)(I), then an amendment

to eliminate the right to defer that distribution would also violate § 411(d)(6)(B). By

contrast, an employer will not have eliminated an optional form of benefit in violation of § 411(d)(6)(B) merely because the

plan’s default for whether a distribution

occurs in the absence of a participant’s or

beneficiary’s election is different than the

default for whether a distribution occurs

in the absence of a plan amendment.

V. OTHER ISSUES

Q–1. Do IRAs have to be amended for

the waiver of required minimum distributions for 2020 pursuant to § 401(a)(9)(I)?

A–1. No, while the waiver of 2020

RMDs pursuant to § 401(a)(9)(I) applies

to IRAs, an IRA does not have to be

amended to reflect the waiver.

Q–2. For a plan that permits an employee or beneficiary to elect whether

RMDs are determined using the 5-year

rule in § 401(a)(9)(B)(ii) or the life expectancy rule in § 401(a)(9)(B)(iii) and (iv),

does § 401(a)(9)(I) extend the time for

making the election?

A–2. Yes, if a plan permits an employee

or beneficiary to elect whether the 5-year

rule or the life expectancy rule applies

in determining RMDs, then the deadline

for making that election typically would

be the end of calendar year following the

calendar year of the employee’s death. For

example, if a 50-year-old employee in a

plan providing the election described in

July 13, 2020

§ 1.401(a)(9)–3, Q&A–4(c) died in 2019

with his sister as his designated beneficiary, the plan provision would require

the election by the end of 2020. However, pursuant to § 401(a)(9)(I), that type of

plan may be amended to permit the extension of the election deadline to the end of

2021.

Q–3. Does § 401(a)(9)(I) extend the

time for making a direct rollover for a

nonspouse designated beneficiary pursuant to § 402(c)(11)?

A–3. Yes, § 401(a)(9)(I) extends the

time for making a direct rollover for a

nonspouse designated beneficiary if the

participant died in 2019. The “special

rule” at Q&A–17(c)(2) in Notice 2007–

7, 2007–1 C.B. 395, provides that if the

5-year rule applies to a benefit under a

plan, the nonspouse designated beneficiary may determine the amount that is not

eligible for rollover because it is an RMD

using the life expectancy rule in the case

of a distribution made prior to the end of

the year following the year of death. This

special rule in Notice 2007–7 is hereby

modified so that if the employee’s death

occurred in 2019, the nonspouse designated beneficiary has until the end of 2021 to

make the direct rollover and use the life

expectancy rule.

Q-4. Does § 401(a)(9)(I) affect an individual’s required beginning date?

A-4. No, the waiver of 2020 RMDs

under § 401(a)(9)(I) does not change an

individual’s required beginning date.

Thus, for example, if an individual has a

required beginning date of April 1, 2020,

and dies after April 1, 2020, then that individual will be treated as having died

after his or her required beginning date

regardless of whether that individual had

commenced receiving distributions or had

delayed commencing distributions until

2021 pursuant to § 401(a)(9)(I).

Q-5. How does § 401(a)(9)(I) impact

an employee who has a required beginning date of April 1, 2021?

A-5. Section 401(a)(9)(I) waives the

RMD for 2020 regardless of whether

the employee’s required beginning date

is April 1, 2021. Thus, for example, if

an employee who is not a 5% owner attained age 70½ before January 1, 2020,

and retires in the 2020 calendar year,

that employee’s required beginning date

is April 1, 2021. Pursuant to § 401(a)(9)

(I), the employee is not required to receive an RMD for 2020 before April 1,

2021, but must still receive the RMD for

the 2021 calendar year by December 31,

2021. If the employee receives a distribution during 2021, then under the rules

of § 1.402(c)-2, Q&A-7, that distribution

is an RMD for the 2021 calendar year to

the extent the total RMD for 2021 has

not been satisfied even if the distribution

is made on or before April 1, 2021, and

accordingly, is not an eligible rollover

distribution pursuant to § 402(c)(4)(B).

However, to the extent the RMD for 2021

has been satisfied, subsequent amounts

distributed in 2021 that would otherwise

not be eligible rollover distributions pursuant to § 402(c)(4)(A) and § 1.402(c)-2,

Q&A-5, may be rolled over consistent

with the rollover guidance provided in

section III.B.2 of this notice.

Q–6. Besides the extensions provided

in Q&A–2 and Q&A–3 of this notice and

the rollover guidance provided in section

III of this notice, are any other deadlines

extended or rollover requirements modified in light of section 2203 of the CARES

Act?

A–6. No, section 2203 of the CARES

Act and section III of this notice address

only certain deadlines and rollover requirements. Thus, for example, there is no

extension of the deadline of September 30

following the year of death in § 1.401(a)

(9)–4, Q&A–4 (relating to the determination of designated beneficiaries); the

October 31 deadline in § 1.401(a)(9)–4,

Q&A–6(b) (relating to the date by which

the trustee of a trust that is a plan’s designated beneficiary must provide the plan

administrator certain information); or the

last-day-of-the-year deadline in § 1.401(a)

(9)–8, Q&A–2(a)(2) (relating to the date

by which separate accounts must be established). Similarly, if a participant or beneficiary dies in 2020, there is no extension

of the 5-year period described in § 401(a)

(9)(B)(ii) or the 10-year period described

in § 401(a)(9)(H)(i) or § 401(a)(9)(H)(iii),

as applicable.

Q–7. For a plan subject to §§ 401(a)

(11) and 417, is spousal consent required

to suspend distributions that include 2020

RMDs and restart distributions in 2021?

A–7. A plan subject to §§ 401(a)(11)

and 417 may provide for either option

described in Q&A–8 of Notice 97–75,

Bulletin No. 2020–29

1997–2 C.B. 337, choosing whether or not

to have a new annuity starting date when

distributions restart. If the plan does not

provide for a new annuity starting date,

spousal consent is not required under most

circumstances. If the plan provides that

there is a new annuity starting date, spousal consent may be required for the suspension of distributions that include 2020

RMDs and the restart of distributions in

2021, depending on the form of distribution in each case.

Q–8. May distributions made from

a plan be rolled over back into the same

plan?

A–8. Yes, distributions from a plan

may be rolled over back into the same

plan, provided the plan permits rollovers

and the rollover satisfies the requirements

of § 402(c), taking into account the relief

provided in section III.B and C of this notice.

Q–9. Does a payor have the option of

treating a 2020 RMD paid from a plan in

2020 as subject to the mandatory 20-percent withholding rate for eligible rollover

distributions under § 3405(c)?

A–9. No. Under the last sentence of §

402(c)(4), a 2020 RMD that is paid from

a plan in 2020 is not treated as an eligible rollover distribution for purposes of

the withholding rules under § 3405. For

example, if a plan makes a distribution in

2020 to a retiree of his entire account balance under the plan and part of the distribution is a 2020 RMD, the portion of the

distribution that is not a 2020 RMD is an

eligible rollover distribution and is subject

Bulletin No. 2020–29

to the 20-percent mandatory withholding

rules under § 3405(c), and the portion of

the distribution that is a 2020 RMD is not

an eligible rollover distribution for purposes of § 3405(c) and is subject to the

10-percent optional withholding rules under § 3405(b). On the other hand, if the retiree was receiving monthly distributions

from the plan that exceeded his RMDs and

that are expected to last for a period of at

least 10 years, then the entire amount of

each distribution is subject to the periodic-payment optional withholding rules under § 3405(a).

Q–10. Does § 401(a)(9)(I) apply to

payments that are part of a series of substantially equal periodic payments under

the “RMD method” (a series of payments

described in Notice 89–25 and Rev. Rul.

2002–62 that are designed to satisfy the

§ 72(t)(2)(A)(iv) exception to the 10-percent additional tax under § 72(t)) so that

the cessation of the payments for 2020

would not be considered a modification

under § 72(t)(4)?

A–10. No. Section 401(a)(9)(I) does

not apply to these payments; accordingly,

if they are stopped in 2020 (other than because of death or disability) prior to age

59½ (or prior to 5 years from the date of

the first payment), the cessation of the

payments is a modification under § 72(t)

(4) so that all the payments made under

the series are subject to a recapture tax under § 72(t)(4).

Q-11. Is an IRA trustee, issuer, or custodian required to notify IRA owners that

no RMD is due for 2020?

A-11. Yes, an IRA trustee, issuer, or

custodian must notify an IRA owner that

no RMD is due for 2020. This requirement

is satisfied if a copy of the Form 5498 that

is filed with the IRS is furnished to the

IRA owner.

Q-12. Does the waiver of 2020 RMDs

apply in the case of a distribution from

a defined benefit plan that uses the rule

in § 1.401(a)(9)-6 Q&A-1(d)(1) (under

which the plan determines the portion of

a single sum distribution that is an RMD

as if the plan were an individual account

plan)?

A-12. No, the waiver of 2020 RMDs

under § 401(a)(9)(I) does not apply to a

defined benefit plan. This is the case even

if the defined benefit plan is using the rule

in § 1.401(a)(9)-6 Q&A-1(d)(1) to determine the portion of a single sum distribution that is an RMD.

VI. EFFECT ON OTHER

DOCUMENTS

Notice 2007–7 is modified by Q&A–3

of this notice.

DRAFTING INFORMATION

The principal author of this notice is

Brandon Ford of the Office of the Associate Chief Counsel (Employee Benefits,

Exempt Organizations, and Employment

Taxes). For further information regarding

this notice, contact Brandon Ford at (202)

317-4148 (not a toll-free number).

July 13, 2020

Appendix

Defined Contribution Plan Sample Amendment for Section 401(a)(9)(I)

Notwithstanding section ________ of the plan, whether a participant or beneficiary who would have been required to receive required minimum distributions in 2020 (or paid in 2021 for the 2020 calendar year for a participant with a required beginning date of

April 1, 2021) but for the enactment of section 401(a)(9)(I) of the Code (2020 RMDs), and who would have satisfied that requirement

by receiving distributions that are either (1) equal to the 2020 RMDs, or (2) one or more payments (that include the 2020 RMDs) in

a series of substantially equal periodic payments made at least annually and expected to last for the life (or life expectancy) of the

participant, the joint lives (or joint life expectancies) of the participant and the participant’s designated beneficiary, or for a period of

at least 10 years (Extended 2020 RMDs), will receive those distributions is determined in accordance with the option chosen by the

employer in the adoption agreement. Notwithstanding the option chosen by the employer in the adoption agreement, a participant or

beneficiary will be given an opportunity to make an election as to whether or not to receive those distributions.

In addition, notwithstanding section ________ of the plan, and solely for purposes of applying the direct rollover provisions of

the plan, certain additional distributions in 2020, as chosen by the employer in the adoption agreement, will be treated as eligible

rollover distributions.

If no election is made by the employer in the adoption agreement, a direct rollover will be offered only for distributions that would

be eligible rollover distributions in the absence of section 401(a)(9)(I).

(Adoption agreement provisions)

Effective date of amendment providing choice for 2020 RMDs

Section ______ of the plan providing for a choice of whether a participant or beneficiary will receive 2020 RMDs is effective

_____________________.

Treatment of 2020 RMDs in the absence of a participant or beneficiary election

________ A participant or beneficiary who would have been required to receive a 2020 RMD will receive this distribution unless the

participant or beneficiary chooses not to receive the distribution.

________ A participant or beneficiary who would have been required to receive a 2020 RMD will not receive this distribution unless

the participant or beneficiary chooses to receive the distribution.

Direct Rollovers

For purposes of the direct rollover provisions of the plan, the following will also be treated as eligible rollover distributions in 2020:

(Check one or none.)

________ 2020 RMDs (as defined in the plan).

________ 2020 RMDs and Extended 2020 RMDs (both as defined in the plan).

________ 2020 RMDs (as defined in the plan) but only if paid with an additional amount that is an eligible rollover distribution

without regard to section 401(a)(9)(I).

July 13, 2020

Bulletin No. 2020–29

COVID-19 Relief and Other

Guidance on Mid-Year

Reductions or Suspensions

of Contributions to Safe

Harbor § 401(k) and

§ 401(m) Plans

bution arrangement (QACA) safe harbor

§ 401(k) plan). Similarly, as an alternative to satisfying the annual ACP test with

respect to matching contributions, a plan

may satisfy the ACP safe harbor provisions of § 401(m)(11) (a traditional safe

harbor § 401(m) plan) or § 401(m)(12) (a

QACA safe harbor § 401(m) plan).

Notice 2020-52

B. Safe Harbor Contributions

I. PURPOSE

This notice clarifies the requirements

that apply to a mid-year amendment to

a safe harbor § 401(k) or § 401(m) plan

that reduces only contributions made on

behalf of highly compensated employees

(HCEs), as defined in § 414(q) of the Internal Revenue Code (Code). This notice

also provides temporary relief in connection with the ongoing Coronavirus Disease 2019 (COVID-19) pandemic from

certain requirements that would otherwise

apply to a mid‑year amendment to a safe

harbor § 401(k) or § 401(m) plan adopted

between March 13, 2020, and August 31,

2020, that reduces or suspends safe harbor

contributions.

II. BACKGROUND

A. Exemptions from Actual Deferral

Percentage (ADP) and Actual

Contribution Percentage (ACP) Testing

for Safe Harbor Plans

Under § 401(a)(4) and § 1.401(a)(4)1(b)(2), contributions or benefits provided under a qualified retirement plan

must not be discriminatory in amount in

favor of HCEs. Under § 401(k)(3) and

§ 1.401(k)-1(a)(4)(iv)(A) and (b)(1)(ii)

(A), a § 401(k) plan satisfies this requirement if elective contributions made on behalf of eligible employees for a year satisfy the ADP test described in § 1.401(k)-2.

Under § 401(m)(2) and § 1.401(m)‑1(a)

(1)(i) and (b)(1)(i), a similar test, the ACP

test, applies to matching contributions and

employee contributions.

As an alternative to satisfying the annual ADP test, a plan may satisfy the ADP

safe harbor provisions of § 401(k)(12) (a

traditional safe harbor § 401(k) plan) or

§ 401(k)(13) (a qualified automatic contri-

Bulletin No. 2020–29

Under § 1.401(k)-3(a)(1), a traditional safe harbor § 401(k) plan is required

to satisfy the safe harbor contribution

requirements of either § 1.401(k)-3(b)

(safe harbor nonelective contributions)

or § 1.401(k)-3(c) (safe harbor matching

contributions) for the plan year. Under

§ 1.401(k)-3(b) and (c), contributions

must be made on behalf of each eligible

employee who is not an HCE (NHCE).

Similarly, under § 1.401(m)-3(a)(1), a

traditional safe harbor § 401(m) plan is

required to satisfy the safe harbor contribution requirements of either § 1.401(m)3(b), which cross-references the safe harbor nonelective contribution requirements

of § 1.401(k)-3(b), or § 1.401(m)-3(c),

which cross-references the safe harbor

matching contribution requirements of

§ 1.401(k)-3(c), for the plan year.

Under § 1.401(k)-3(a)(2), a QACA

safe harbor § 401(k) plan is required to

satisfy the safe harbor contribution requirements of § 1.401(k)-3(k) for the plan

year. Under § 1.401(k)-3(k)(1), a QACA

safe harbor § 401(k) plan must satisfy either the safe harbor nonelective contribution requirements of § 1.401(k)-3(b) or the

safe harbor matching contribution requirements of § 1.401(k)-3(c), as modified by

§ 1.401(k)‑3(k)(2) and (3). Similarly, under § 1.401(m)-3(a)(2), a QACA safe harbor § 401(m) plan is required to satisfy the

safe harbor requirements of § 1.401(k)-3,

including the safe harbor contribution requirements of § 1.401(k)‑3(k).

Subject to certain requirements, a plan

that includes safe harbor contributions

also may include contributions that are not

safe harbor contributions. For example, a

traditional safe harbor § 401(k) plan that

includes safe harbor nonelective contributions may also provide either (1) a discretionary matching contribution of 4% of

safe harbor compensation that would not

need to satisfy the ACP test because the

contribution satisfies the requirements of

§ 1.401(m)-3(d) (including the limits on

matching rate increases, matching contributions, and matching rates on behalf of

HCEs as compared to matching rates on

behalf of NHCEs), or (2) a discretionary

matching contribution in excess of 4% of

safe harbor compensation that would need

to satisfy the ACP test because the contribution does not satisfy the limit on discretionary matching contributions under

§ 1.401(m)-3(d)(3)(ii). Under § 1.401(k)3(a)(3), neither of these types of additional matching contributions are referred to

as safe harbor contributions.

C. Mid-Year Changes to Safe Harbor

Plans and Notices

Section 1.401(k)-3(e)(1) provides that,

in general, a plan will fail to satisfy the

requirements of § 401(k)(12) and (13)

and § 1.401(k)-3 unless plan provisions

that satisfy the safe harbor plan rules of

§ 1.401(k)-3 are adopted before the first

day of the plan year and remain in effect

for an entire 12-month plan year. In addition, § 1.401(k)‑3(e)(1) provides that,

except as provided in § 1.401(k)-3(g) or

in guidance of general applicability published in the Internal Revenue Bulletin, a

plan that includes provisions that satisfy

the safe harbor plan rules of § 1.401(k)-3

will not satisfy the nondiscrimination requirements for § 401(k) plans for a plan

year if the plan is amended to change

those provisions during the plan year. Section 1.401(m)-3(f) includes similar provisions for safe harbor § 401(m) plans.

Section 1.401(k)-3(g) provides that

a plan that includes safe harbor contributions for a plan year may be amended

during the plan year to reduce or suspend

future safe harbor matching contributions

or safe harbor nonelective contributions if

the plan is also amended to provide that

the ADP test will be satisfied for the entire

plan year in which the reduction or suspension occurs (using the current year testing

method) and if certain other requirements

are satisfied. Section 1.401(k)-3(g)(1)(i)

sets forth the requirements for a mid-year

reduction or suspension of safe harbor

matching contributions, and § 1.401(k)3(g)(1)(ii) sets forth the requirements for

a mid-year reduction or suspension of safe

harbor nonelective contributions.

July 13, 2020

Under § 1.401(k)-3(g)(1)(i)(A) and (ii)

(A), the employer must either (1) be operating at an economic loss (as described

in § 412(c)(2)(A)) for the plan year, or

(2) have included in the plan’s safe harbor

notice (as described in § 1.401(k)-3(d))

for the plan year a statement that the plan

may be amended during the plan year to

reduce or suspend safe harbor contributions and that the reduction or suspension

will not apply earlier than 30 days after

all eligible employees are provided notice of the reduction or suspension. Under

§ 1.401(k)‑3(g)(1)(i)(C) and (ii)(C), the

reduction or suspension of safe harbor

contributions may be effective no earlier

than the later of the date the amendment is

adopted or 30 days after eligible employees are provided the supplemental notice

described in § 1.401(k)-3(g)(2). Under

§ 1.401(k)-3(g)(1)(i)(D) and (ii)(D), eligible employees must be given a reasonable

opportunity (including a reasonable period

after receipt of the supplemental notice)

prior to the reduction or suspension of safe

harbor contributions to change their cash

or deferred elections and, if applicable,

their employee contribution elections.

Section 1.401(m)-3(h) provides rules

similar to those of § 1.401(k)-3(g) for a

reduction or suspension of future safe harbor matching contributions or safe harbor

nonelective contributions in a safe harbor

§ 401(m) plan.

Notice 2016-16, 2016-7 I.R.B. 318,

provides guidance on mid-year changes to safe harbor plans to the extent that

conditions for those mid-year changes are

not addressed in the Code or regulations

(including conditions for reducing or suspending safe harbor contributions under

§§ 1.401(k)-3(g) and 1.401(m)-3(h)). Section III.B of Notice 2016-16 provides that

a change made to a safe harbor plan or to a

plan’s required safe harbor notice content

does not fail to satisfy the requirements

of §§ 1.401(k)-3 and 1.401(m)-3 merely

because the change is a mid-year change,

provided that (1) if it is a mid-year change

to a plan’s required safe harbor notice

content, the notice and election opportu-

nity conditions in section III.C of Notice

2016‑16 are satisfied; and (2) the mid‑year

change is not described in a list of prohibited mid‑year changes in section III.D of

Notice 2016-16. Section III.A of Notice

2016-16 defines required safe harbor notice content as the information that is required by the safe harbor plan regulations

to be provided in a plan’s safe harbor notice. For example, a plan’s safe harbor notice must describe any other contributions

under the plan or matching contributions

to another plan on account of elective

contributions or employee contributions

under the plan (including the potential for

discretionary matching contributions) and

the conditions under which such contributions are made. See § 1.401(k)‑3(d)(2)(ii)

(B).

D. COVID-19 Pandemic

On March 13, 2020, the President of

the United States issued an emergency

declaration under the Robert T. Stafford

Disaster Relief and Emergency Assistance

Act in response to the ongoing COVID-19

pandemic. In connection with the

COVID-19 pandemic, the Department of

the Treasury (Treasury Department) and

the Internal Revenue Service (IRS) have

issued guidance postponing certain deadlines. See, for example, Notice 2020-51

(extending the 60-day rollover period for

certain distributions to August 31, 2020),

which was released on June 23, 2020.

During the ongoing COVID-19 pandemic, many employers are facing unexpected financial challenges. The Treasury

Department and the IRS have received

comments that, as a result of these unexpected financial challenges, employers

may need to reduce or suspend contributions under their safe harbor plans in order

to satisfy payroll and other operating costs.

One option that an employer maintaining

a safe harbor plan may be considering is

to reduce plan contributions made on behalf of HCEs. However, an employer may

be uncertain as to whether an amendment

that reduces only contributions made on

behalf of HCEs is subject to the conditions

for reducing or suspending safe harbor

contributions set forth in §§ 1.401(k)-3(g)

and 1.401(m)-3(h). An employer may also

be considering reducing or suspending a

plan’s safe harbor matching contributions

or safe harbor nonelective contributions.

However, an employer may be uncertain

as to whether it is operating at an economic loss for the plan year and, due to the

unexpected nature of the COVID-19 pandemic, the employer may not have foreseen the need to have included a statement

in the plan’s safe harbor notice that safe

harbor contributions may be reduced midyear. Further, in light of the COVID‑19

pandemic, an employer may have difficulty satisfying the timing requirements for

providing notice of reductions or suspensions of safe harbor contributions.

III. CLARIFICATION OF

REQUIREMENTS FOR REDUCING

CONTRIBUTIONS MADE ON

BEHALF OF HCEs

As described in section II.B of this

notice, contributions made on behalf of

HCEs are not included in the definition of

safe harbor contributions. Accordingly, a

mid-year change that reduces only contributions made on behalf of HCEs is not

a reduction or suspension of safe harbor

contributions described in §§ 1.401(k)3(g) and 1.401(m)‑3(h). However, a midyear change that reduces only contributions made on behalf of HCEs would be a

mid-year change to a plan’s required safe

harbor notice content for purposes of section III.B of Notice 2016-16. Therefore,

in order to satisfy the notice and election

opportunity conditions of section III.C of

Notice 2016-16, which apply generally

to changes that affect required safe harbor notice content and are not reductions

or suspensions of safe harbor contributions, an updated safe harbor notice and

an election opportunity must be provided

to HCEs to whom the mid-year change

applies, determined as of the date of issuance of the updated safe harbor notice.1

The guidance in this section III does not address the impact on Notice 2016-16 of section 103 of Division O of the Further Consolidated Appropriations Act, 2020, P.L. 116-94, known as the

Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act). Among other changes, SECURE Act section 103 eliminated the safe harbor notice requirements of

§ 401(k)(12)(D) and (13)(E) for plans that satisfy the safe harbor nonelective contribution requirements of either § 401(k)(12)(C) or 401(k)(13)(D)(i)(II).

July 13, 2020

Bulletin No. 2020–29

IV. TEMPORARY COVID-19 RELIEF

REGARDING REDUCTIONS OR

SUSPENSIONS OF SAFE HARBOR

CONTRIBUTIONS

Due to the unprecedented nature of

the COVID-19 pandemic, the Treasury

Department and the IRS are providing

the following temporary relief with respect to a reduction or suspension of safe

harbor contributions in order to provide

employers with more flexibility during

the COVID-19 pandemic, while retaining certain existing participant protections:

A. Temporary Relief Related to MidYear Reductions or Suspensions of

Safe Harbor Matching or Safe Harbor

Nonelective Contributions

If a plan amendment that reduces or

suspends safe harbor matching contributions or safe harbor nonelective contributions during a plan year is adopted

between March 13, 2020, and August

31, 2020, then the plan will not be treated as failing to satisfy the requirement in

§§ 1.401(k)‑3(g)(1)(i)(A) and (ii)(A) and

1.401(m)‑3(h)(1)(i)(A) and (ii)(A) that

the employer either (1) is operating at an

economic loss (as described in § 412(c)

(2)(A)) for the plan year, or (2) has included in the plan’s safe harbor notice (as

described in § 1.401(k)-3(d)) for the plan

Bulletin No. 2020–29

year a statement that (a) the plan may be

amended during the plan year to reduce or

suspend the safe harbor contributions and

(b) the reduction or suspension will not

apply until at least 30 days after all eligible employees are provided notice of the

reduction or suspension.

B. Temporary Relief Related to the

Supplemental Notice Requirement for

Mid-Year Reductions or Suspensions of

Safe Harbor Nonelective Contributions

If a plan amendment that reduces or

suspends safe harbor nonelective contributions during a plan year is adopted

between March 13, 2020, and August 31,

2020, then the plan will not be treated

as failing to satisfy the requirements of

§ 1.401(k)‑3(g)(1)(ii) or § 1.401(m)-3(h)

(1)(ii) merely because a supplemental

notice is not provided to eligible employees at least 30 days before the reduction

or suspension of safe harbor nonelective

contributions is effective, provided that

(1) the supplemental notice is provided to

eligible employees no later than August

31, 2020, and (2) the plan amendment that

reduces or suspends safe harbor nonelective contributions is adopted no later than

the effective date of the reduction or suspension of safe harbor nonelective contributions.

This notice does not provide relief with

respect to the timing of supplemental no-

tices for a mid-year reduction or suspension of safe harbor matching contributions

under § 1.401(k)‑3(g)(1)(i) or 1.401(m)3(h)(1)(i) because matching contribution

levels communicated to employees directly affect employee decisions regarding

elective contributions (and, if applicable,

employee contributions).

V. SECTION 403(b) PLANS

Sections III and IV of this notice apply

on similar terms to § 403(b) plans that apply the § 401(m) safe harbor rules pursuant to § 403(b)(12).

VI. EFFECT ON OTHER

DOCUMENTS

Notice 2016-16 is clarified by section

III of this notice.

VII. DRAFTING INFORMATION

The principal author of this notice

is Kara M. Soderstrom of the Office of

the Associate Chief Counsel (Employee Benefits, Exempt Organizations, and

Employment Taxes). However, other

personnel from the Treasury Department

and the IRS participated in the development of this guidance. For further information regarding this notice, contact Ms.

Soderstrom at (202) 317-6799 (not a tollfree number).

July 13, 2020

NOTE. This revenue procedure will be reproduced as the next revision of IRS Publication 1179, General Rules and Specifications for Substitute Forms 1096, 1098,

1099, 5498, and Certain Other Information Returns.

Forms and instructions. (Also, Part 1, Sections 101, 162(f), 170, 199A, 220, 223, 401(a), 403(a), 403(b), 408, 408A, 457(b), 529, 529A, 530, 853A, 1400Z-1, 1400Z–2,

1441, 6041, 6041A, 6042, 6043, 6044, 6045, 6047, 6049, 6050A, 6050B, 6050D, 6050E, 6050H, 6050J, 6050N, 6050P, 6050Q, 6050R, 6050S, 6050U, 6050W,

6050X, 6050Y, 6071, 1.402A-2, 1.408-5, 1.408-7, 1.408-8, 1.408A-7, 1.1441-1 through 1.1441-5, 1.1471-4, 1.6041-1, 1.6042-2, 1.6042-4, 1.6043-4, 1.6044-2,

1.6044-5, 1.6045-1, 1.6045-2, 1.6045-4, 1.6047-1, 1.6047-2, 1.6049-4, 1.6049-6, 1.6049-7, 1.6050A-1, 1.6050B-1, 1.6050D-1, 1.6050E-1, 1.6050H-1, 1.6050H-2,

1.6050J-1T, 1.6050N-1, 1.6050P-1, 1. 6050S-1, 1.6050S-3, 1.6050W-1, 1.6050W-2, 1.6050Y-1, 1.6050Y-2, 1.6050Y-3.)

Rev. Proc. 2020-35

TABLE OF CONTENTS

Part 1 – GENERAL INFORMATION

Section 1.1 – Overview of Revenue Procedure 2020-35/What’s New. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

Section 1.2 – Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86

Section 1.3 – General Requirements for Acceptable Substitute Forms 1096, 1097BTC, 1098, 1099, 3921, 3922, 5498, W-2G, and 1042-S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86

Part 2 – SPECIFICATIONS FOR SUBSTITUTE FORMS 1096 AND COPIES A OF

FORMS 1098, 1099, 3921, 3922, AND 5498 (ALL FILED WITH THE IRS)

Section 2.1 – Specifications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .89

Section 2.2 – Instructions for Preparing Paper Forms That Will Be Filed With the IRS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94

Part 3 – SPECIFICATIONS FOR SUBSTITUTE FORM W-2G (FILED WITH THE IRS)

Section 3.1 – General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96

Section 3.2 – Specifications for Copy A of Form W-2G. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96

Part 4 – SUBSTITUTE STATEMENTS TO FORM RECIPIENTS AND FORM RECIPIENT COPIES

Section 4.1 – Specifications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .97

Section 4.2 – Composite Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101

Section 4.3 – Additional Information for Substitute and Composite Forms 1099-B. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103

Section 4.4 – Required Legends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103

Section 4.5 – Miscellaneous Instructions for Copies B, C, D, E, 1, and 2. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105

Section 4.6 – Electronic Delivery of Recipient Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107

Part 5 – ADDITIONAL INSTRUCTIONS FOR SUBSTITUTE FORMS 1097- BTC, 1098, 1099, 5498,

W-2G, AND 1042-S

Section 5.1 – Paper Substitutes for Form 1042-S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108

Section 5.2 – OMB Requirements for All Forms in This Revenue Procedure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110

Section 5.3 – Ordering Forms and Instructions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111

Section 5.4 – Effect on Other Revenue Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112

Part 6 – EXHIBITS

Section 6.1 – Exhibits of Forms in this Revenue Procedure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112

July 13, 2020

Bulletin No. 2020–29

Part 1

General Information

Section 1.1 – Overview of Revenue Procedure 2020-35/What’s New

1.1.1

Purpose

1.1.2

Which Forms

Are Covered?

Bulletin No. 2020–29

The purpose of this revenue procedure is to set forth the 2020 requirements for:

•

Using official Internal Revenue Service (IRS) forms to file information returns with the IRS,

•

Preparing acceptable substitutes of the official IRS forms to file information returns with the

IRS, and

•

Using official or acceptable substitute forms to furnish information to recipients.

This revenue procedure contains specifications for these information returns:

Form

1096

1097-BTC

1098

1098-C

1098-E

1098-F

1098-MA

1098-Q

1098-T

1099-A

1099-B

1099-C

1099-CAP

1099-DIV

1099-G

1099-INT

1099-K

1099-LS

1099-LTC

1099-MISC

1099-NEC

1099-OID

1099-PATR

1099-Q

1099-QA

Title

Annual Summary and Transmittal of U.S. Information Returns

Bond Tax Credit

Mortgage Interest Statement

Contributions of Motor Vehicles, Boats, and Airplanes

Student Loan Interest Statement

Fines, Penalties, and Other Amounts

Mortgage Assistance Payments

Qualifying Longevity Annuity Contract Information

Tuition Statement

Acquisition or Abandonment of Secured Property

Proceeds From Broker and Barter Exchange Transactions

Cancellation of Debt

Changes in Corporate Control and Capital Structure

Dividends and Distributions

Certain Government Payments

Interest Income

Payment Card and Third Party Network Transactions

Reportable Life Insurance Sale

Long-Term Care and Accelerated Death Benefits

Miscellaneous Income

Nonemployee Compensation

Original Issue Discount

Taxable Distributions Received From Cooperatives

Payments From Qualified Education Programs (Under Sections 529 and 530)

Distributions From ABLE Accounts

July 13, 2020

Form

1099-R

1.1.3

Scope

Title

1099-S

Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans,

IRAs, Insurance Contracts, etc.

Proceeds From Real Estate Transactions

1099-SA

Distributions From an HSA, Archer MSA, or Medicare Advantage MSA

1099-SB

Seller's Investment in Life Insurance Contract

3921

Exercise of an Incentive Stock Option Under Section 422(b)

3922

5498

Transfer of Stock Acquired Through An Employee Stock Purchase Plan Under

Section 423(c)

IRA Contribution Information

5498-ESA

Coverdell ESA Contribution Information

5498-QA

ABLE Account Contribution Information

5498-SA

HSA, Archer MSA, or Medicare Advantage MSA Information

W-2G

Certain Gambling Winnings

1042-S

Foreign Person’s U.S. Source Income Subject to Withholding

For purposes of this revenue procedure, a substitute form or statement is one that is not published

by the IRS. For a substitute form or statement to be acceptable to the IRS, it must conform to the

official form or the specifications outlined in this revenue procedure. Do not submit any substitute

forms or statements listed above to the IRS for approval. Privately published forms may not state,

“This is an IRS approved form.”

Filers making payments to certain recipients during a calendar year are required by the Internal

Revenue Code (the Code) to file information returns with the IRS for these payments. These filers

must also provide this information to their recipients. In some cases, this also applies to payments

received. See Part 4 for specifications that apply to recipient statements (generally Copy B).

In general, section 6011 of the Code contains requirements for filers of information returns. A filer

must file information returns electronically or on paper. A filer who is required to file 250 or more

information returns of any one type during a calendar year must file those returns electronically.

Caution. Financial institutions that are required to report payments made under chapter 3 or 4

must file Forms 1042-S electronically, regardless of the number of forms to file.

Note. If you file electronically, do not file the same returns on paper.

Although not required, small volume filers (fewer than 250 returns during a calendar year) may

file the forms electronically. See the requirements for filing information returns (and providing a

copy to a payee) in the 2020 General Instructions for Certain Information Returns and the 2020

Instructions for Form 1042-S. In addition, see the current revision of Publication 1220, Specifications for Electronic Filing of Forms 1097, 1098, 1099, 3921, 3922, 5498, and W-2G, for electronic

filing through the IRS FIRE system.

1.1.4

For More

Information

July 13, 2020

The IRS prints and provides the forms on which various payments must be reported. See Section 5.3, later, for ordering forms and instructions. Alternately, filers may prepare substitute copies

of these IRS forms and use such forms to report payments to the IRS.

Bulletin No. 2020–29

•

The Internal Revenue Service/Information Returns Branch (IRS/IRB) maintains a centralized customer service call site to answer questions related to information returns (Forms

W-2, W-3, W-2c, W-3c, 1099 series, 1096, etc.). You can reach the call site at 866-455-7438

(toll-free) or outside the U.S. 304-263-8700 (not a toll-free number). Persons with a hearing

or speech disability with access to TTY/TDD equipment can call 304-579-4827 (not a tollfree number). You may also send questions to the call site via the Internet at mccirp@irs.

gov. Note. IRS/IRB does not process information returns which are filed on paper forms. See

Publication 1220 for information on waivers and extensions of time.

•

For other tax information related to business returns or accounts, call 800-829-4933. Persons

with hearing or speech disabilities with access to TTY/TDD equipment can call 800-8294059 to ask tax account questions or to order forms and publications.

Note. Further information impacting Publication 1179, such as issues arising after its final release,

will be posted on IRS.gov at IRS.gov/pub1179.

1.1.5

What’s New

The following changes have been made to this year’s revenue procedure. For further information

about each form listed below, see the separate reporting instructions.

Redesigned Form 1099-MISC. Due to the creation of Form 1099-NEC, we have revised Form

1099-MISC and rearranged box numbers for reporting certain income. For the latest filing information, see IRS.gov/Form1099-MISC.

New Form 1099-NEC. Beginning with tax year 2020, use Form 1099-NEC to report nonemployee compensation. See part C in the 2020 General Instructions for Certain Information Returns at

IRS.gov/forms-pubs/about-form-1099, and Form 8809 at IRS.gov/forms-pubs/about-form-8809

for information on extensions of time to file. See part M in the 2020 General Instructions for

Certain Information Returns for information on extensions of time to furnish recipient statements.

To ease statement furnishing requirements, Copies B, C, 1, and 2 have been made fillable online in

a PDF format available at IRS.gov/Form1099MISC and IRS.gov/Form1099NEC. You can complete these copies online for furnishing statements to recipients and for retaining in your own files.

Form 1099-PATR. Numbered reporting box changes. New boxes were added and existing

boxes were renumbered, retitled, and/or repurposed to allow for reporting information to patrons

needed for section 199A. See the revised instructions for boxes 2, 5, 6, 7, 8, and 9.

Box 13 title and content change. Box 13 has been renamed and the instructions have been updated accordingly. Box 13. Specified Cooperatives. For more information, see IRS.gov/Form1099PATR .

Continuous use. Form 1097-BTC, Form 1098-C, Form 1098-F, Form 1098-MA, Form 1098-Q,

Form 1099-CAP, Form 1099-LS, Form 1099-LTC, Form 1099-OID, Form 1099-Q, Form 1099SA, and Form 1099-SB and their instructions have been converted from annual updates to continuous use. These forms and their instructions will be updated as required. For more information,

see the Guide to Information Returns, in the 2020 General Instructions for Certain Information

Returns at IRS.gov/forms-pubs/about-form-1099.

Exhibits. All of the exhibits in this publication were updated to include all of the 2020 revisions

of those forms that have been revised.

Editorial changes. We made editorial changes throughout, including updated references. Redundancies were eliminated as much as possible.

Bulletin No. 2020–29

July 13, 2020

Section 1.2 – Definitions

1.2.1

Form Recipient

Form recipient means the person to whom you are required by law to furnish a copy of the official form or information statement. The form recipient may be referred to by different names on

various Forms 1099 and related forms (“beneficiary,” “borrower,” “debtor,” “donor,” “employee,”

“filer,” “homeowner,” “insured,” “participant,” “payee,” “payer,” “payer/borrower,” “payment recipient,” “policyholder,” “seller,” “shareholder,” “student,” “transferor,” or, in the case of Form

W-2G, the “winner”). See Section 1.3.4.

1.2.2

Filer

Filer means the person or organization required by law to file with the IRS a form listed in Section 1.1.2 with the IRS. A filer may be a payer, creditor, payment settlement entity, recipient of

mortgage or student loan interest payments, educational institution, broker, barter exchange, person reporting real estate transactions; a trustee or issuer of any educational or ABLE Act savings

account, individual retirement arrangement, or medical savings account; a lender who acquires an

interest in secured property or who has reason to know that the property has been abandoned; a

corporation reporting a change in control and capital structure or transfer of stock to an employee;

certain donees of motor vehicles, boats, and airplanes; or an acquirer or issuer of a life insurance

contract.

1.2.3

Substitute Form

Substitute form means a paper substitute of Copy A of an official form listed in Section 1.1.2 that

completely conforms to the provisions in this revenue procedure.

1.2.4

Substitute Form Recipient

Statement (recipient

statement)

1.2.5

Composite Substitute

Statement

Substitute form recipient statement means a paper or electronic statement of the information reported on a form listed in Section 1.1.2. For the remainder of this revenue procedure, we will refer

to this as a recipient statement. This statement must be furnished to a person (form recipient), as

defined under the applicable provisions of the Code and the applicable regulations.

Composite substitute statement means one in which two or more required statements (for example, Forms 1099-INT and 1099-DIV) are furnished to the recipient on one document. However,

each statement must be designated separately and must contain all the requisite Form 1099 information except as provided under Section 4.2. A composite statement may not be filed with the IRS.

Section 1.3 – General Requirements for Acceptable Substitute Forms 1096, 1097-BTC, 1098, 1099, 3921, 3922, 5498, W-2G,

and 1042-S

July 13, 2020

Bulletin No. 2020–29

1.3.1

Introduction

Paper substitutes for Form 1096 and Copy A of Forms 1097-BTC, 1098, 1099, 3921, 3922, 5498,

W-2G, and 1042-S that completely conform to the specifications listed in this revenue procedure

may be privately printed and filed as returns with the IRS. The reference to the Department of the

Treasury– Internal Revenue Service should be included on all such forms.

If you are uncertain of any specification and want it clarified, you may submit a letter citing the

specification, stating your understanding and interpretation of the specification, and enclosing an

example of the form (if appropriate) to:

Internal Revenue Service

Attn: Substitute Forms Program

SE:W:CAR:MP:P:TP

1111 Constitution Ave. NW

Room 6554

Washington, DC 20224

Note. Allow at least 30 days for the IRS to respond.

You may also contact the Substitute Forms Program via e-mail at substituteforms@irs.gov. Please

enter “Substitute Forms” on the Subject Line.

Forms 1096, 1097-BTC, 1098, 1099, 3921, 3922, 5498, W-2G, and 1042-S are subject to annual

review and possible change. Therefore, filers are cautioned against overstocking supplies of privately printed substitutes.

1.3.2

Logos, Slogans, and