Bulletin No. 2020–31

HIGHLIGHTS

OF THIS ISSUE





Bulletin No. 2020–31

July 27, 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.

EMPLOYMENT TAX,

SELF-EMPLOYMENT TAX

with information necessary for properly claiming qualified

sick leave equivalent or qualified family leave equivalent credits under the Families First Act.

Notice 2020-54, page 226.

INCOME TAX

Notice 2020-54 provides guidance to employers on the requirement to report the amount of qualified sick leave wages

and qualified family leave wages paid to employees under

the Families First Coronavirus Response Act (Families First

Act), Pub. L. No. 116-127, 134 Stat. 178 (March 18, 2020).

Employers will be required to report these amounts either on

Form W-2, Box 14, or on a separate statement. This required

reporting provides employees who are also self-employed

Finding Lists begin on page ii.

REG-123027-19, page 229.

These proposed regulations relax the minimum compliance-monitoring sampling requirement for purposes of physical inspections and low-income certification review provided

in the Amendments to the Low-Income Housing Credit Compliance-Monitoring Regulations (T.D. 9848) published in the

Federal Register (84 FR 6076).

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 27, 2020 

Bulletin No. 2020–31

Part III

Guidance on Reporting

Qualified Sick Leave Wages

and Qualified Family Leave

Wages Paid Pursuant to the

Families First Coronavirus

Response Act

Notice 2020-54

I. PURPOSE

This notice provides guidance to employers on the requirement to report the

amount of qualified sick leave wages and

qualified family leave wages paid to employees under the Families First Coronavirus Response Act (Families First Act),

Pub. L. No. 116-127, 134 Stat. 178 (March

18, 2020). Employers will be required to

report these amounts either on Form W-2,

Box 14, or on a separate statement. This

required reporting provides employees

who are also self-employed with information necessary for properly claiming

qualified sick leave equivalent or qualified

family leave equivalent credits under the

Families First Act.

II. BACKGROUND

The Families First Act generally requires employers with fewer than 500

employees to provide paid leave due

to certain circumstances related to the

Coronavirus Disease 2019 (COVID-19)

through two separate provisions: the

Emergency Paid Sick Leave Act and the

Emergency Family and Medical Leave

Expansion Act.

Division E of the Families First Act,

the Emergency Paid Sick Leave Act

(EPSLA), requires certain employers to

provide employees with up to 80 hours of

paid sick leave if the employee is unable

to work or telework because the employee:

(1) is subject to a Federal, State, or local quarantine or isolation order related to

COVID-19;

(2) has been advised by a health care

provider to self-quarantine due to concerns related to COVID-19;

(3) is experiencing symptoms of

COVID-19 and seeking a medical diagnosis;

(4) is caring for an individual who

is subject to a Federal, State, or local

quarantine or isolation order related to

COVID-19, or has been advised by a

health care provider to self-quarantine due

to concerns related to COVID-19;

(5) is caring for a son or daughter of

such employee if the school or place

of care of the son or daughter has been

closed, or the child care provider of such

son or daughter is unavailable, due to

COVID-19 precautions; or

(6) is experiencing any other substantially similar condition specified by the

Secretary of Health and Human Services

in consultation with the Secretaries of the

Treasury and Labor.1

An employee who is unable to work or

telework for reasons related to COVID-19

described in (1), (2), or (3) above is entitled to paid sick leave at the employee’s

regular rate of pay or, if higher, the Federal

minimum wage or any applicable State or

local minimum wage, up to $511 per day

and $5,110 in the aggregate. An employee who is unable to work or telework for

reasons related to COVID-19 described in

(4), (5), or (6) above is entitled to paid sick

leave at two-thirds the employee’s regular

rate of pay or, if higher, the Federal minimum wage or any applicable State or local

minimum wage, up to $200 per day and

$2,000 in the aggregate.

Division C of the Families First Act,

the Emergency Family and Medical Leave

Expansion Act (EFMLEA), amends the

Family and Medical Leave Act of 1993

to require employers to provide expanded

paid family and medical leave to employees who are unable to work or telework

for reasons related to COVID-19. An employee can receive up to 10 weeks of paid

family and medical leave at two-thirds

the employee’s regular rate of pay, up to

$200 per day and $10,000 in the aggregate

if the employee is unable to work or telework because the employee is caring for

a son or daughter whose school or place

of care is closed or whose child care provider is unavailable for reasons related to

COVID-19.

Sections 7001 and 7003 of the Families

First Act generally provide that employers

subject to the paid leave requirements under EPSLA and EFMLEA (“eligible employers”) are entitled to fully refundable

tax credits to cover the cost of the leave

required to be paid for those periods of

time during which employees are unable

to work or telework for reasons related to

COVID-19.2

Eligible employers are entitled to receive a refundable credit equal to the

amount of the qualified sick leave wages

and qualified family leave wages (collectively “qualified leave wages”), plus

allocable qualified health plan expenses.

The credit is allowed against the taxes

imposed on employers by section 3111(a)

of the Internal Revenue Code (Code)

(the Old-Age, Survivors, and Disability

Insurance tax (social security tax)), first

reduced by any credits claimed under sections 3111(e) and (f) of the Code, and section 3221(a) of the Code (the Railroad Retirement Tax Act Tier 1 tax), on all wages

and compensation paid to all employees.

Under section 7005 of the Families First

Act, the qualified leave wages are not subject to the taxes imposed on employers by

sections 3111(a) and 3221(a) of the Code.

In addition, section 7005 provides that the

credits under sections 7001 and 7003 of

the Families First Act are increased by

the amount of the tax imposed by section

3111(b) of the Code (employer’s share of

Medicare tax) on qualified leave wages.3

Specifically, section 7001(b) of the

Families First Act provides eligible em-

As of the date this Notice is being released, the U.S. Department of Health and Human Services has not yet specified any other such conditions.

Under sections 7001(d)(4) and 7003(d)(4) of the Families First Act, these credits do not apply to the government of the United States, the government of any State or political subdivision

thereof, or any agency or instrumentality of any of the foregoing.

3

The credit for the employer’s share of Medicare tax does not apply to eligible employers that are subject to Railroad Retirement Tax Act (RRTA) because under section 7005(a) of the

Families First Act qualified leave wages are not subject to Medicare tax under RRTA due to that section’s reference to section 3221(a) of the Code, which includes both social security tax

and Medicare tax.

1

2

July 27, 2020

226

Bulletin No. 2020–31

ployers with a refundable tax credit for

qualified sick leave wages paid to an employee not to exceed $200 (or $511 in

the case of any day any portion of which

the employee is paid sick time described

in paragraph (1), (2), or (3) of section

5102(a) of the EPSLA) for any day (or

portion thereof), and the maximum number of days that may be taken into account

per employee is ten days. Section 7003(b)

of the Families First Act provides eligible

employers with a refundable tax credit

for qualified family leave wages paid to

an employee not to exceed $200 per day,

and the aggregate credit may not exceed

$10,000 per employee. Up to ten weeks of

qualifying family leave wages can be taken into account for the credit.

Sections 7002(a) and 7004(a) of the

Families First Act entitle a self-employed

individual to a refundable credit against

income tax imposed on self-employment

income for qualified sick leave equivalent

amounts and qualified family leave equivalent amounts. The credit is available to

self-employed individuals carrying on any

trade or business within the meaning of

section 1402 of the Code if the self-employed individual would be entitled to receive paid leave under the EPSLA or the

EFMLEA if the individual were an employee of an employer (other than himself

or herself).

The refundable credits authorized under the Families First Act apply to qualified sick leave wages and qualified family leave wages paid with respect to the

period beginning on April 1, 2020, and

ending on December 31, 2020.4 The same

period is used to determine the refundable

credits for qualified sick leave equivalent

amounts and qualified family leave equivalent amounts for self-employed individuals.

If a self-employed individual is entitled

to a refundable credit for a qualified sick

leave equivalent amount under section

7002(a) of the Families First Act and also

receives qualified sick leave wages as an

employee that are required to be paid un-

der the EPSLA, section 7002(d)(3) of the

Families First Act reduces the qualified

sick leave equivalent amount for which

the self-employed individual may claim a

tax credit to the extent that the sum of the

qualified sick leave equivalent amount described in section 7002(c) of the Families

First Act and any qualified sick leave wages under section 7001(b)(1) of the Families First Act exceeds $2,000 (or $5,110 in

the case of any day any portion of which

is paid sick time described in paragraph

(1), (2), or (3) of section 5102(a) of the

EPSLA). Similarly, if a self-employed individual is entitled to a refundable credit for a qualified family leave equivalent

amount under section 7004(a) of the Families First Act and also receives qualified

family leave wages as an employee under

the EFMLEA, section 7004(d)(3) of the

Families First Act reduces the qualified

family leave equivalent amount for which

the self-employed individual may claim a

tax credit to the extent that the sum of the

qualified family leave equivalent amount

described in section 7004(c) of the Families First Act and the qualified family

leave wages under section 7003(b)(1) of

the Families First Act exceeds $10,000.

Section 7002(g) and section 7004(e)

of the Families First Act provide that the

Secretary of the Treasury shall prescribe

such regulations or other guidance as may

be necessary to carry out the purposes of

sections 7002 and 7004 of the Families

First Act, respectively.

III. REPORTING REQUIREMENTS

In order to provide self-employed individuals who also receive wages or compensation as employees with the information they need to properly claim any

qualified sick leave equivalent or qualified

family leave equivalent credits for which

they are eligible, this notice requires employers to report to employees the amount

of qualified sick leave wages and qualified

family leave wages paid to the employees

under sections 7001 or 7003 of the Fam-

ilies First Act, respectively. Employers

must separately state the total amount of

qualified sick leave wages paid pursuant

to paragraphs (1), (2), or (3) of section

5102(a) of the EPSLA, qualified sick

leave wages paid pursuant to paragraphs

(4), (5), and (6) of section 5102(a) of the

EPSLA, and qualified family leave wages paid pursuant to section 3102(b) of the

EFMLEA. Employers must separately

state each of these wage amounts either on

Form W-2, Box 14 or on a separate statement. Self-employed individuals claiming

qualified sick leave equivalent or qualified

family leave equivalent credits must then

report these qualified sick leave and qualified family leave wage amounts on Form

7202, Credits for Sick Leave and Family

Leave for Certain Self-Employed Individuals, included with their income tax

returns, and reduce (but not below zero)

any qualified sick leave or qualified family leave equivalent credits by the amount

of these qualified leave wages.

Reporting Qualified Sick Leave Wages

In addition to including qualified sick

leave wages in the amount of wages paid

to the employee reported in Boxes 1, 3 (up

to the social security wage base), and 5 of

Form W-2 (or, in the case of compensation subject to the RRTA, in the amount of

RRTA compensation paid to the employee

reported in Boxes 1 and 14 of Form W-25),

employers must report to the employee

the following type and amount of the wages that were paid, with each amount separately reported either in Box 14 of Form

W-2 or on a separate statement:

• the total amount of qualified sick

leave wages paid for reasons described in paragraphs (1), (2), or (3)

of section 5102(a) of the EPSLA; in

labeling this amount, the employer

must use the following, or similar,

language: “sick leave wages subject

to the $511 per day limit;” and

• the total amount of qualified sick

leave wages paid for reasons de-

Sections 7001(g) and 7003(g) of the Families First Act provide that sections 7001 and 7003 apply to wages paid with respect to the period beginning on a date selected by the Secretary of

the Treasury which is during the 15-day period beginning on the date of the enactment of the Families First Act (March 18, 2020). Notice 2020-21, 2020-16 I.R.B. 660, provides that the tax

credits for qualified sick leave wages and qualified family leave wages under sections 7001 and 7003 of the Families First Act apply to wages paid for the period beginning on April 1, 2020,

and ending on December 31, 2020.

5

Railroad employers are directed by the instructions to Form W-2 to report certain specified amounts in Box 14. Other employers are directed to use Box 14 “for any other information that

you want to give to your employee. Label each item.” This notice directs all employers to use Box 14 to report qualified sick leave wages and qualified family leave wages, unless a separate

statement is used instead.

4

Bulletin No. 2020–31

227

July 27, 2020

scribed in paragraphs (4), (5), or (6)

of section 5102(a) of the EPSLA; in

labeling this amount, the employer

must use the following or similar language: “sick leave wages subject to

the $200 per day limit.”

If a separate statement is provided and

the employee receives a paper Form W-2,

then the statement must be included with

the Form W-2 provided to the employee,

and if the employee receives an electronic

Form W-2, then the statement shall be provided in the same manner and at the same

time as the Form W-2.

Reporting Qualified Family Leave Wages

In addition to including qualified family leave wages in the amount of wages

paid to the employee reported in Boxes 1,

3 (up to the social security wage base), and

5 of Form W-2 (or, in the case of compensation subject to RRTA, in the amount of

RRTA compensation paid to the employee

reported in Boxes 1 and 14 of Form W-2),

employers must separately report to the

employee the total amount of qualified

family leave wages paid to the employee

under the EFMLEA either in Box 14 of

Form W-2 or on a separate statement. In

labeling this amount, the employer must

use the following, or similar, language:

“emergency family leave wages.” If a separate statement is provided and the employee receives a paper Form W-2, then

the statement must be included with the

Form W-2 sent to the employee, and if

the employee receives an electronic Form

July 27, 2020

W-2, then the statement shall be provided

in the same manner and at the same time

as the Form W-2.

Model Language for Employee

Instructions

As part of the Instructions for Employee, under the instructions for Box 14, for

the Forms W-2, or in a separate statement

sent to the employee, the employer may

provide additional information about qualified sick leave wages and qualified family

leave wages and explain that these wages may limit the amount of the qualified

sick leave equivalent or qualified family

leave equivalent credits to which the employee may be entitled with respect to any

self-employment income. The following

model language (modified as necessary)

may be used:

“Included in Box 14, if applicable, are

amounts paid to you as qualified sick

leave wages or qualified family leave

wages under the Families First Coronavirus Response Act. Specifically, up to

three types of paid qualified sick leave

wages or qualified family leave wages

are reported in Box 14:

• Sick leave wages subject to the $511

per day limit because of care you

required;

• Sick leave wages subject to the

$200 per day limit because of care

you provided to another; and

• Emergency family leave wages.

If you have self-employment income

in addition to wages paid by your

228

employer, and you intend to claim

any qualified sick leave or qualified

family leave equivalent credits, you

must report the qualified sick leave or

qualified family leave wages on Form

7202, Credits for Sick Leave and

Family Leave for Certain Self-Employed Individuals, included with

your income tax return and reduce

(but not below zero) any qualified

sick leave or qualified family leave

equivalent credits by the amount of

these qualified leave wages. If you

have self-employment income, you

should refer to the instructions for

your individual income tax return for

more information.”

IV. PAPERWORK REDUCTION ACT

Any collection of information associated with this notice has been submitted

to the Office of Management and Budget

for review under OMB control number

1545-0008 in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.

3507(d)). 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.

V. DRAFTING INFORMATION

The principal author of this notice is

Michael Gitlin. For further information on

the provisions of this notice, please contact Mr. Gitlin at 202-317-6798 (not a tollfree number).

Bulletin No. 2020–31

Part IV

Notice of Proposed

Rulemaking

Low-Income Housing Credit

Compliance-Monitoring

Regulations

REG-123027-19

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Notice of proposed rulemaking.

SUMMARY: This document contains

proposed regulations relating to the compliance-monitoring duties of State or local housing credit agencies (Agencies)

for purposes of the low-income housing

credit under section 42 of the Internal

Revenue Code (Code). These proposed

regulations would relax the minimum

compliance-monitoring sampling requirement for purposes of physical inspections

and low-income certification review provided in the Amendments to the Low-Income Housing Credit Compliance-Monitoring Regulations (T.D. 9848) published

in the Federal Register (84 FR 6076). The

proposed regulations will affect owners of

low-income housing projects, tenants in

those low-income housing projects, and

Agencies that administer the credit.

DATES: Written or electronic comments

and requests for a public hearing must be

received by September 8, 2020.

ADDRESSES: Commenters are strongly

encouraged to submit public comments

electronically. Submit electronic submissions via the Federal eRulemaking Portal

at www.regulations.gov (indicate IRS and

REG-123027-19) by following the online

instructions for submitting comments.

Once submitted to the Federal eRulemak-

ing Portal, comments cannot be edited

or withdrawn. The IRS expects to have

limited personnel available to process

public comments that are submitted on

paper through mail. Until further notice,

any comments submitted on paper will be

considered to the extent practicable. The

Department of the Treasury (Treasury

Department) and the IRS will publish for

public availability any comment submitted electronically, and to the extent practicable on paper, to its public docket.

Send paper submissions to: CC:PA:LPD:PR (REG-123027-19), room 5203, Internal Revenue Service, PO Box 7604,

Ben Franklin Station, Washington, D.C.

20044.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, Dillon Taylor or Michael J. Torruella Costa at (202) 317-4137; concerning

submissions of comments and/or requests

for a public hearing, Regina Johnson,

(202) 317-5177 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

This document contains proposed

amendments to the Income Tax Regulations (26 CFR part 1) under section 42 of

the Code.

Section 42(m)(1) requires an Agency

to allocate housing credit dollar amounts

(the potential to earn low-income housing credits) among candidate proposed

buildings/projects. The allocation must

be pursuant to a qualified allocation plan

(QAP) that has been approved by the governmental unit of which the Agency is a

part. A QAP not only sets forth selection

criteria by which an Agency makes these

allocations but also provides a procedure

that the Agency must follow in monitoring

for noncompliance with the provisions of

section 42, including monitoring for non-

compliance with habitability standards

through regular site visits.

Section 1.42-5 of the Income Tax

Regulations (the compliance-monitoring

regulations) provides the requirements

of a monitoring procedure that must be

part of any QAP. Among the requirements, an Agency must perform physical

inspections and low-income certification

review.

The compliance-monitoring regulations, however, do not require that every

low-income unit in a project be monitored

for noncompliance. Instead, Agencies are

permitted to satisfy their compliance-monitoring duties by physically inspecting,

and performing low-income certification

review, on only samples of those units. See

T.D. 8430, 57 FR 40118, 40121 (Sept. 2,

1992).1 For many years, starting in 2000,

the minimum sample size for both file review and on-site inspections was 20 percent of the low-income units, regardless of

the size of the total population of low-income units in a project. See T.D. 8859, 65

FR 2323, 2327 (Jan. 14, 2000).

On February 25, 2016, the Treasury

Department and the IRS published temporary regulations (T.D. 9753) in the Federal Register (81 FR 9333), which amended

§1.42-5 of the Income Tax Regulations and

permitted the IRS to establish sample-size

criteria in guidance published in the Internal Revenue Bulletin. See §601.601(d)

(2)(ii)(b) of 26 CFR Chapter 1.2 Concurrently with the issuance of the temporary

regulations, Revenue Procedure 2016-15,

2016-11 I.R.B. 435, was published in the

Internal Revenue Bulletin. This revenue

procedure permitted an Agency to elect

to use sample sizes of either a minimum

of 20 percent of the low-income units in

a project (rounded up to the nearest whole

number) or the number in a chart identifying minimum sample sizes depending on

the number of low-income units in a project (the Low-Income Housing Credit Minimum Unit Sample Size Reference Chart).

Initially, the requirements were that the Agency choose which units receive low-income certification review, that the owner receive no more than reasonable notice of the review, and that

the Agency have the right to perform on-site inspection. See T.D. 8430 at 40122-23. Subsequently, some on-site inspections were required, and samples for both review and inspection were

required to be chosen randomly. See T.D. 8859, 65 FR 2323, 2327 (Jan. 14, 2000).

2

Also in the same issue of the Federal Register, the Treasury Department and the IRS published a notice of proposed rulemaking (REG-150349-12, 81 FR 9379) (proposed regulations). The

text of the proposed regulations incorporated by cross-reference the text of the temporary regulations.

1

Bulletin No. 2020–31

229

July 27, 2020

The minimum sample sizes in the chart

correspond to the minimum sample sizes

required by the Department of Housing

and Urban Development’s (HUD’s) Real

Estate Assessment Center for inspections

under HUD programs (the REAC numbers). HUD designed this table of sample

sizes to produce a statistically consistent

level of confidence in the results of physical inspections across a broad range of

project sizes.

The revenue procedure had the effect

of reducing the minimum sample sizes for

large low-income housing projects (those

with more than 110 low-income units).

Because of the choice between using

the REAC number and 20 percent of the

low-income units, the revenue procedure

did not impact projects with fewer than

111 low-income units.

The same sample-size provisions

applied to independently selected samples on which the Agency must perform

low-income certification review. The

revenue procedure provided only minimum sample sizes, permitting Agencies

to monitor compliance in more units, if

desired.

In the preamble to the temporary regulations, the Treasury Department and the

IRS expressed concern that, in smaller

projects, physical inspection or low-income certification review of only 20 percent of the units might fail to produce

sufficiently accurate estimates of the remaining units’ overall compliance with

habitability and low-income certification.

To address this concern, the preamble

added that “the Treasury Department and

the IRS intend to consider whether Rev.

Proc. 2016–15 should be replaced with a

revenue procedure that does not permit

use of the 20 percent rule in those circumstances.” 81 FR at 9334. The removal

of the 20 percent option would generally

increase the number of units that needed

to be inspected in smaller projects. The

public comments on the temporary regulations directed very little attention to this

potential increase.

In addition, the preamble invited fundamental suggestions to make inspections

less burdensome:

The Treasury Department and the



IRS believe the methods in Rev. Proc.

2016-15 reasonably balance the bur-

July 27, 2020

den on Agencies, tenants, and building owners while adequately monitoring compliance. However, additional

comments may be submitted on other

possible methods, including stratified

sampling procedures and estimation

methodologies. To be useful, any such

comments should include substantial

detail regarding the procedures to be

adopted and should provide thorough

justification as to whether the suggested methods effectively reduce

burden without negatively impacting

the confidence that can be placed in

the results obtained from the resulting

samples.

Id. at 9336. The public submitted no comment letters specifically responsive to this

request.

On February 26, 2019, the Treasury

Department and IRS published regulations (T.D. 9848) in the Federal Register

(84 FR 6076), finalizing the temporary

regulations. Because these final regulations contain provisions directly addressing all issues previously addressed in Revenue Procedure 2016-15, the preamble of

the final regulations declares that revenue

procedure obsolete with respect to an

Agency as of the date on which the Agency’s QAP is amended to reflect the final

regulations and, in all cases, after December 31, 2020. See 84 FR at 6078. Among

other provisions, the final regulations require Agencies to inspect no fewer units

than the number specified for projects of

the relevant size in the REAC numbers.

This requirement has the effect of increasing the sample sizes for smaller projects.

The Treasury Department and the IRS determined that the REAC numbers produce

a statistically valid sampling of units and

that using them yielded a consistent level

of confidence in the compliance-monitoring results for projects of various sizes.

The final regulations allow Agencies a

reasonable period of time to amend their

QAPs for this purpose, but require QAPs

to be amended no later than December 31,

2020.

Since the publication of the final regulations, the Treasury Department and

the IRS have received numerous oral and

written comments from Agencies, stakeholders, and trade groups representing

Agencies. In particular, these comments

230

expressed concern that the final regulations ended Agencies’ ability to use samples of 20 percent of the low-income units

in a project when the applicable REAC

number is larger. Consistent with the

comments and letters, the trade groups’

comment letters expressed concern about

the situations in which the REAC numbers would increase the number of units

that Agencies must examine, thereby increasing Agencies’ costs for additional

staff and other related expenditures and

burdens. One trade group further explained that many Agencies would encounter difficulty in addressing increased

staffing needs and other new costs due

to overall State budget constraints. The

trade group observed that cost increases

are also likely to cause Agencies to increase the compliance-monitoring fees

that they charge to building owners. If

fees are not increased enough to cover

the increased costs, Agencies will have

to divert resources from other affordable

housing priorities to fund their compliance-monitoring activities. The trade

group noted that terminating the ability

to use the 20 percent samples will have

its most significant impact on States with

numerous small projects, predominantly

in rural areas, and that some States with

only small projects may even experience

a 100 percent increase in burden.

Explanation of Provisions

The final regulations reflected the belief of the Treasury Department and the

IRS that a higher compliance-monitoring

burden on Agencies was justified by the

increased statistical confidence that results

from the use of the REAC numbers to determine sample sizes for smaller projects.

The comments on the final regulations,

however, have demonstrated the magnitude of the increased costs and burdens

that this requirement imposes on Agencies. As a result of these comments, the

Treasury Department and the IRS have

greater awareness of the many practical

challenges Agencies experience in using

samples greater than 20 percent while carrying out their compliance-monitoring responsibilities. Furthermore, the comments

noted that many Agencies typically evaluate each project to determine if circum-

Bulletin No. 2020–31

stances warrant the inspection and review

of more units than the required minimum.

Complying with the REAC numbers when

an Agency believes that smaller samples

would be sufficient may have the effect of

depriving the Agency of the resources that

it requires to engage in additional compliance-monitoring activities on projects

that manifest the need for inspection and

review of more than the minimum sample

of units.

Although there is value in providing a

level of confidence that is more consistent

over a broad range of project sizes, that

increased consistency is outweighed in

this context by concerns over Agencies’

compliance-monitoring burdens. One

goal of the compliance-monitoring regulations is to increase flexibility and reduce

burden, so that Agencies may fulfill their

compliance-monitoring responsibilities

in an efficient and cost-effective manner.

Accordingly, the Treasury Department

and the IRS propose returning to the sample-size requirements that applied under

the temporary regulations. Thus, under

these proposed regulations, the minimum

number of low-income units that must be

included in the random samples on which

an Agency conducts physical inspections

or low-income certification review is the

lesser of the applicable REAC number

or 20 percent of the low-income units in

the project, rounded up to the next whole

number.

Proposed Applicability Date

These regulations are proposed to apply beginning after the date these regulations are published as final regulations in

the Federal Register. However, an Agency may rely on these proposed regulations

beginning on February 26, 2019, until December 31 of the calendar year following

the year that contains the date these regulations are published as final regulations

in the Federal Register.

Special Analyses

This regulation is not subject to review

under section 6(b) of Executive Order

12866 pursuant to the Memorandum of

Bulletin No. 2020–31

Agreement (April 11, 2018) between the

Treasury Department and the Office of

Management and Budget regarding review of tax regulations.

In accordance with the Regulatory

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

is hereby certified that these regulations

will not impose a significant economic

impact on a substantial number of small

entities. These regulations reinstate the

minimum compliance-monitoring sampling requirement for purposes of physical inspections and low-income certification review previously provided under

the temporary regulations (T.D. 9753)

published in the Federal Register (81

FR 9333) on February 25, 2016. These

previously provided requirements had

been and continue to be relied upon by

Agencies since 2016.

Pursuant to section 7805(f) of the Internal Revenue Code, these regulations

will be submitted to the Chief Counsel for

Advocacy of the Small Business Administration for comment on their impact on

small business.

Comments and Requests for a Public

Hearing

Before these proposed amendments

to the regulations are adopted as final

regulations, consideration will be given

to comments that are submitted timely

to the IRS as prescribed in the preamble

under the “ADDRESSES” section. The

Treasury Department and the IRS request

comments on all aspects of the proposed

regulations. Any electronic comments

submitted, and to the extent practicable

any paper comments submitted, will be

made available at www.regulations.gov or

upon request.

A public hearing will be scheduled if

requested in writing by any person who

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

also encouraged to be made electronically.

If a public hearing is scheduled, notice of

the date and time for the public hearing

will be published in the Federal Register. Announcement 2020-4, 2020-17 IRB

1, provides that until further notice, public hearings conducted by the IRS will be

231

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

disabilities.

Drafting Information

The principal authors of these regulations are Dillon Taylor and Michael J.

Torruella Costa, 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.

Proposed Amendments to the

Regulations

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

PART 1—INCOME TAXES

Paragraph 1. The authority citation

for part 1 continues to read in part as follows:

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

Par. 2. Amend §1.42-5 by revising

paragraphs (c)(2)(iii)(B) and (h) to read as

follows:

§1.42-5 Monitoring compliance with

low-income housing credit requirements.

*****

(c) * * *

(2) * * *

(iii) * * *

(B) Number of low-income units. The

minimum number of low-income units for

which the Agency must conduct on-site

inspections and low-income certification

review is the lesser of—

(1) 20 percent of the low-income units

in the low-income housing project, rounded up to the nearest whole number of

units; or

(2) the Minimum Unit Sample Size set

forth in the following Low-Income Housing Credit Minimum Unit Sample Size

Reference Chart:

July 27, 2020

Table 1 to Paragraph (c)(2)(iii)

Number of Low-Income Units in the Low-Income Housing

Project

Number of Low-Income Units Selected for Inspection or for

Low-Income Certification Review (Minimum Unit Sample

Size)

1

2

3

4

5-6

7

8-9

10-11

12-13

14-16

17-18

19-21

22-25

26-29

30-34

35-40

41-47

48-56

57-67

68-81

82-101

102-130

131-175

176-257

258-449

450-1,461

1,462-9,999

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

*****

(h) Applicability dates. The requirements in paragraph (c)(2)(iii)(B) of this

section apply beginning after the date final

regulations are published in the Federal

Register.

July 27, 2020

Douglas W. O’Donnell,

Acting Deputy Commissioner for

Services and Enforcement.

232

(Filed by the Office of the Federal Register on July

2, 2020, 4:15 p.m., and published in the issue of the

Federal Register for July 7, 2020, 85 F.R. 40610)

Bulletin No. 2020–31

Definition of Terms

Revenue rulings and revenue procedures

(hereinafter referred to as “rulings”) that

have an effect on previous rulings use the

following defined terms to describe the

­effect:

Amplified describes a situation where

no change is being made in a prior published position, but the prior position is

being extended to apply to a variation of

the fact situation set forth therein. Thus, if

an earlier ruling held that a principle applied to A, and the new ruling holds that

the same principle also applies to B, the

earlier ruling is amplified. (Compare with

modified, below).

Clarified is used in those instances

where the language in a prior ruling is being made clear because the language has

caused, or may cause, some confusion. It

is not used where a position in a prior ruling is being changed.

Distinguished describes a situation

where a ruling mentions a previously published ruling and points out an essential

difference between them.

Modified is used where the substance

of a previously published position is being

changed. Thus, if a prior ruling held that a

principle applied to A but not to B, and the

new ruling holds that it applies to both A

and B, the prior ruling is modified because

it corrects a published position. (Compare

with amplified and clarified, above).

Obsoleted describes a previously published ruling that is not considered determinative with respect to future transactions.

This term is most commonly used in a ruling

that lists previously published rulings that

are obsoleted because of changes in laws or

regulations. A ruling may also be obsoleted

because the substance has been included in

regulations subsequently adopted.

Revoked describes situations where the

position in the previously published ruling

is not correct and the correct position is

being stated in a new ruling.

Superseded describes a situation where

the new ruling does nothing more than

restate the substance and situation of a

previously published ruling (or rulings).

Thus, the term is used to republish under

the 1986 Code and regulations the same

position published under the 1939 Code

and regulations. The term is also used

when it is desired to republish in a single

ruling a series of situations, names, etc.,

that were previously published over a

period of time in separate rulings. If the

new ruling does more than restate the substance of a prior ruling, a combination of

terms is used. For example, modified and

superseded describes a situation where the

substance of a previously published ruling

is being changed in part and is continued

without change in part and it is desired to

restate the valid portion of the previously published ruling in a new ruling that is

self contained. In this case, the previously

published ruling is first modified and then,

as modified, is superseded.

Supplemented is used in situations in

which a list, such as a list of the names of

countries, is published in a ruling and that

list is expanded by adding further names

in subsequent rulings. After the original

ruling has been supplemented several

times, a new ruling may be published that

includes the list in the original ruling and

the additions, and supersedes all prior rulings in the series.

Suspended is used in rare situations to

show that the previous published rulings

will not be applied pending some future

action such as the issuance of new or

amended regulations, the outcome of cases in litigation, or the outcome of a Service study.

Abbreviations

The following abbreviations in current use

and formerly used will appear in material

published in the Bulletin.

A—Individual.

Acq.—Acquiescence.

B—Individual.

BE—Beneficiary.

BK—Bank.

B.T.A.—Board of Tax Appeals.

C—Individual.

C.B.—Cumulative Bulletin.

CFR—Code of Federal Regulations.

CI—City.

COOP—Cooperative.

Ct.D.—Court Decision.

CY—County.

D—Decedent.

DC—Dummy Corporation.

DE—Donee.

Del. Order—Delegation Order.

DISC—Domestic International Sales Corporation.

DR—Donor.

E—Estate.

EE—Employee.

E.O.—Executive Order.

ER—Employer.

Bulletin No. 2020–31

ERISA—Employee Retirement Income Security Act.

EX—Executor.

F—Fiduciary.

FC—Foreign Country.

FICA—Federal Insurance Contributions Act.

FISC—Foreign International Sales Company.

FPH—Foreign Personal Holding Company.

F.R.—Federal Register.

FUTA—Federal Unemployment Tax Act.

FX—Foreign corporation.

G.C.M.—Chief Counsel’s Memorandum.

GE—Grantee.

GP—General Partner.

GR—Grantor.

IC—Insurance Company.

I.R.B.—Internal Revenue Bulletin.

LE—Lessee.

LP—Limited Partner.

LR—Lessor.

M—Minor.

Nonacq.—Nonacquiescence.

O—Organization.

P—Parent Corporation.

PHC—Personal Holding Company.

PO—Possession of the U.S.

PR—Partner.

PRS—Partnership.

i

PTE—Prohibited Transaction Exemption.

Pub. L.—Public Law.

REIT—Real Estate Investment Trust.

Rev. Proc.—Revenue Procedure.

Rev. Rul.—Revenue Ruling.

S—Subsidiary.

S.P.R.—Statement of Procedural Rules.

Stat.—Statutes at Large.

T—Target Corporation.

T.C.—Tax Court.

T.D.—Treasury Decision.

TFE—Transferee.

TFR—Transferor.

T.I.R.—Technical Information Release.

TP—Taxpayer.

TR—Trust.

TT—Trustee.

U.S.C.—United States Code.

X—Corporation.

Y—Corporation.

Z—Corporation.

July 27, 2020

Numerical Finding List1

Bulletin 2020–31

Notices:

2020-43, 2020-27 I.R.B. 1

2020-45, 2020-27 I.R.B. 3

2020-46, 2020-27 I.R.B. 7

2020-47, 2020-27 I.R.B. 7

2020-49, 2020-27 I.R.B. 8

2020-50, 2020-28 I.R.B. 35

2020-48, 2020-29 I.R.B. 72

2020-51, 2020-29 I.R.B. 73

2020-52, 2020-29 I.R.B. 79

2020-53, 2020-30 I.R.B. 151

2020-54, 2020-31 I.R.B. 226

Proposed Regulations:

REG-119307-19, 2020-28 I.R.B. 44

REG-112339-19, 2020-30 I.R.B. 155

REG-117589-18, 2020-30 I.R.B. 184

REG-125716-18, 2020-30 I.R.B. 197

REG-123027-19, 2020-31 I.R.B. 229

Revenue Procedures:

2020-16, 2020-27 I.R.B. 10

2020-31, 2020-27 I.R.B. 12

2020-35, 2020-29 I.R.B. 82

Revenue Rulings:

2020-14, 2020-28 I.R.B. 33

Treasury Decisions:

9899, 2020-29 I.R.B. 62

9900, 2020-30 I.R.B. 143

A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2018–27 through 2018–52 is in Internal Revenue Bulletin

2018–52, dated December 27, 2018.

1

July 27, 2020

ii

Bulletin No. 2020–31

Finding List of Current Actions on

Previously Published Items1

Bulletin 2020–31

A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2018–27 through 2018–52 is in Internal Revenue Bulletin

2018–52, dated December 27, 2018.

1

Bulletin No. 2020–31

iii

July 27, 2020

Internal Revenue Service

Washington, DC 20224

Official Business

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