# Bulletin No. 2020–29

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- **Collection:** Agency decision
- **Document type:** Agency decision

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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superseded.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

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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).

63

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

64

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.

65

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
1

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

66

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.
2

Bulletin No. 2020–29

67

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.
(C) Attributes of disallowed loss determined in year loss is incurred.
(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

68

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.
(C) Attributes of disallowed loss or
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

69

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

70

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)

71

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.

72

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).
1

Bulletin No. 2020–29

73

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.
2

July 13, 2020

74

Bulletin No. 2020–29

1.

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

75

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)

76

(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?

77

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

78

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

79

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).
1

July 13, 2020

80

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 s

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Airs%3Af08197354b44074e. Public record. Not legal advice.