Bulletin No. 2020–39

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Bulletin No. 2020–39

September 21, 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. Rul. 2020-18, page 584.

Interest rates: underpayments and overpayments. The rates

for interest determined under Section 6621 of the code for

the calendar quarter beginning October 1, 2020, will be 3

percent for overpayments (2 percent in the case of a corporation), 3 percent for underpayments, and 5 percent for

large corporate underpayments. The rate of interest paid on

the portion of a corporate overpayment exceeding $10,000

will be 0.5 percent.

INCOME TAX

Notice 2020-69, page 604.

This notice announces that the Department of the Treasury

and the Internal Revenue Service intend to issue regulations

addressing the application of §§ 951 and 951A of the Internal Revenue Code to certain S corporations (as defined

in § 1361(a)(1)) with accumulated earnings and profits, as

described in § 316(a)(1). This notice also announces that the

Treasury Department and the IRS intend to issue regulations

Finding Lists begin on page ii.

addressing the treatment of qualified improvement property

under the alternative depreciation system of § 168(g) for purposes of calculating qualified business asset investment for

purposes of the foreign-derived intangible income and global

intangible low-taxed income provisions, which were added to

the Code by the enactment of Public Law No. 115-97, 131

Stat. 2054 (2017), commonly referred to as the Tax Cuts

and Jobs Act (TCJA).

T.D. 9906, page 579.

Nuclear Decommissioning Funds. Section 468A allows a taxpayer to elect to currently deduct amounts

set aside in a qualified nuclear decommissioning fund

for the purpose of decommissioning a nuclear power

plant. These regulations provide rules concerning the

use of those funds to decommission nuclear power

plants. Specifically, the regulations revise and clarify

certain provisions in existing regulations to address

issues that have arisen as more nuclear plants have

begun the decommissioning process. The regulations

also clarify provisions in existing regulations regarding

self-dealing and the definition of substantial completion

of decommissioning.

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

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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.

September 21, 2020

Bulletin No. 2020–39

Part I

26 CFR 1.468A-1; 26 CFR 1.468A-5; 26 CFR

1.468A-9

T.D. 9906

DEPARTMENT OF THE

TREASURY

Internal Revenue Service

26 CFR Part 1

RIN 1545-BN42

Nuclear Decommissioning

Funds

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document contains final

regulations under section 468A of the Internal Revenue Code of 1986 (Code) relating to

deductions for contributions to trusts maintained for decommissioning nuclear power

plants and the use of the amounts in those

trusts to decommission nuclear plants. The

regulations revise and clarify certain provisions in existing regulations to address issues that have arisen as more nuclear plants

have begun the decommissioning process.

DATES: Effective Date: These regulations are effective on September 4, 2020.

Applicability Date: For date of applicability, see §1.468A-9.

FOR FURTHER INFORMATION

CONTACT: Jennifer C. Bernardini, (202)

317-6853 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document contains amendments to

the income tax regulations (26 CFR part 1)

under section 468A of the Code relating to

deductions for contributions to trusts maintained for decommissioning nuclear power

plants and the use of the amounts in those

trusts to decommission nuclear plants.

Section 468A was originally enacted by

section 91(c)(1) of the Deficit Reduction

Bulletin No. 2020–39

Act of 1984, Public Law 98-369 (98 Stat

604) and has been amended several times,

most recently by section 1310 of the Energy Policy Act of 2005, Public Law 109-58

(119 Stat 594). Temporary regulations (TD

9374) under section 468A were published

in the Federal Register on December 31,

2007 (72 FR 74175). Final regulations finalizing and removing the temporary regulations (TD 9512) were published in the

Federal Register on December 23, 2010

(75 FR 80697) (existing regulations). A notice of proposed rulemaking (REG-11280016) (proposed regulations) was published

in the Federal Register (81 FR 95929)

on December 29, 2016. The proposed regulations provide additional guidance on

deductions for contributions to trusts maintained for decommissioning nuclear power

plants and the use of the amounts in those

trusts to decommission nuclear plants under section 468A.

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

several written and electronic comments

in response to the proposed regulations.

All comments are available at www.regulations.gov. The Treasury Department and

the IRS held a public hearing on the proposed regulations on October 25, 2017.

After consideration of the comments

received, including comments made at the

public hearing, the proposed regulations are

adopted as final regulations as revised by

this Treasury decision. In general, these final

regulations follow the approach of the proposed regulations with some modifications

based on the recommendations made in

the comments. This preamble describes the

comments received by the Treasury Department and the IRS and the revisions made.

Summary of Comments and

Explanation of Provisions

1. Definition of Nuclear

Decommissioning Costs

A. Inclusion of Amounts Related to the

Storage of Spent Fuel within Definition

of Nuclear Decommissioning Costs

Section 1.468A-1(b)(6) of the existing

regulations defines nuclear decommissioning costs as including “all otherwise

579

deductible expenses to be incurred in connection with” the disposal of nuclear assets. In the proposed regulations, the Treasury Department and the IRS addressed

questions regarding whether nuclear decommissioning costs include costs related to an Independent Spent Fuel Storage

Installation (ISFSI) for the construction

or purchase of assets that would not necessarily qualify as “otherwise deductible”

expenses under the existing regulations.

The proposed regulations clarified the

definition of nuclear decommissioning

costs to specifically include ISFSI-related costs. The proposed regulations also

confirmed that the requirement that an

expense be “otherwise deductible” is not

applicable to costs related to spent nuclear

fuel generated by a nuclear power plant

or plants. A commenter requested that the

final regulations further clarify this point.

The Treasury and the IRS view additional

clarification as unnecessary and decline to

adopt this suggestion.

The existing and proposed regulations

assume operators typically store spent

fuel in an on-site ISFSI, and thus the definition of nuclear decommissioning costs

included expenses related to fuel storage

in on-site ISFSIs. However, the Treasury

Department and the IRS understand that

because the Department of Energy has not

begun accepting spent fuel for disposal in

a permanent geologic repository, on-site

ISFSIs currently being used by operators of nuclear power plants may become

overcrowded and, as a result, operators

may choose to look to off-site ISFSIs for

future storage capacity. After reviewing

the comments, the Treasury Department

and the IRS have decided to address this

consideration by broadening the definition of nuclear decommissioning costs in

§1.468A-1(b)(6) to include expenses related to spent fuel storage in ISFSIs both

on-site and off-site from the nuclear power plant that generates such spent fuel.

B. Inclusion of Amounts Related

to a Depreciable Asset and to Land

Improvements within Definition of

Nuclear Decommissioning Costs

In response to questions about whether a cost must be currently deductible for

September 21, 2020

that amount to be payable currently from

the Fund under the “otherwise deductible” language of §1.468A-1(b)(6) of the

existing regulations, the proposed regulations broadened the definition of nuclear

decommissioning costs to include the total cost of depreciable or amortizable assets by adding the words “or recoverable

through depreciation or amortization” following “otherwise deductible.”

Commenters suggested that the term

“otherwise deductible” be removed from

the definition of nuclear decommissioning costs. These commenters asserted that

the “otherwise deductible” requirement

is unnecessary with respect to all decommissioning costs because deductibility is

not required by the legislative intent or

plain language of the Code. Nuclear decommissioning costs are broadly defined

in §1.468A-1(b)(5) of the regulations to

include expenses incurred before, during,

and after the actual decommissioning process for the nuclear power plant unit that

has ceased operations. This broad definition is consistent with Congress’s recognition in enacting section 468A of the

Code in 1984 (at the same time as section

461(h) relating to economic performance

was enacted) that “the establishment of

segregated reserve funds for paying future nuclear decommissioning costs was

of sufficient national importance that a tax

deduction, subject to limitations, should

be provided for amounts contributed to

qualified funds.” And further, “[t]axpayers

who do not elect this provision are subject

to the general rules in the Act which do not

permit accrual basis taxpayers to deduct

future liabilities prior to the time when

economic performance occurs (Code Sec

461).” Joint Committee on Taxation Staff,

General Explanation of the Revenue Provisions of the Deficit Reduction Act of

1984, 98th Cong., 2d Sess. 270 (1984).

Nuclear decommissioning costs must

be incurred for the purposes intended

by Congress. However, whether nuclear

decommissioning costs are “otherwise

deductible” are determined under other

provisions of the Code. Costs that meet

the definition of nuclear decommissioning

costs under section 468A are not independently deductible under section 468A.

Specifically, under section 468A(c)(2),

these costs are deductible when economic

performance occurs under section 461(h)

September 21, 2020

(2) if the costs are deductible under section 162 (or are otherwise deductible under another provision of chapter 1 of the

Code). Further, the Treasury Department

and the IRS believe that the broader definition of nuclear decommissioning costs

in the proposed regulations will eliminate

most of the issues raised by commenters

suggesting deletion of “otherwise deductible,” and thus the final regulations do not

adopt this suggestion.

One commenter observed that the proposed regulations can be interpreted to

mean that an expense for property will

not be deemed recoverable through depreciation or amortization if the property

will be considered abandoned for purposes of section 165. The commenter noted

that such an interpretation could lead to

inconsistent results depending on the type

of cost and whether such cost is incurred

while the plant is still operating versus

if such cost is incurred when the plant is

already retired or decommissioned. The

Treasury Department and the IRS do not

believe that the suggested interpretation

is correct. The definition of nuclear decommissioning costs in the proposed regulations should be interpreted to include

costs incurred for depreciable assets as

those costs are incurred, whether or not

such asset will be abandoned for purposes

of section 165.

Commenters suggested that the Treasury Department and the IRS consider

including additional types of assets, such

as land improvements, within the definition of nuclear decommissioning costs to

effectuate the purpose of section 468A.

The Treasury Department and the IRS

agree with this suggestion. Accordingly,

the final regulations broaden the definition of nuclear decommissioning costs

in §1.468A-1(b)(6)(i) to include “all land

improvements and otherwise deductible

expenses to be incurred in connection

with the entombment, decontamination,

dismantlement, removal, and disposal of

the structures, systems and components

of a nuclear power plant, whether that nuclear power plant will continue to produce

electric energy or has permanently ceased

to produce electric energy.”

Commenters also noted that the use of

the term “expense” may cause confusion

because the common business usage of

the term “expense” suggests a period cost.

580

A commenter recommended that the final

regulations use the term “expenditure,”

which in common business usage denotes

an outflow of resources, as more appropriate than “expense” where the reference to

a period cost is not specifically intended.

While the Treasury Department and the

IRS acknowledge the merits of this clarification, the term “expense” is used to describe similar concepts throughout many

other sections of the existing regulations.

Because adoption of the term “expenditure” in §§1.468A-1 and 1.468A-5 may

cause additional confusion and inconsistency with other sections of the existing

regulations where the term “expense” is

used for similar concepts (for example,

§1.468A-4(b)(2) Treatment of Nuclear

Decommissioning Fund; Modified Gross

Income), the final regulations do not adopt

this recommendation.

2. Clarification of the Applicability of

the Self-Dealing Rules to Transactions

Between the Fund and Disqualified

Persons

The proposed regulations provided that, for purposes of the prohibitions

against self-dealing provisions in existing

§1.468A-5(b), reimbursement of decommissioning costs by the Fund to a disqualified person that paid such costs is not an

act of self-dealing. The Treasury Department and the IRS received no comments

on this provision, and these final regulations adopt the proposed regulations on

this point.

The preamble to the proposed regulations further stated that no amount beyond

what is actually paid by the disqualified

person, including amounts such as direct

or indirect overhead or a reasonable profit element, may be included in the reimbursement by the Fund. Several commenters recommended amending the language

of §1.468A-5(b) to expand the types of

expenses permitted to be reimbursed as

nuclear decommissioning costs under

the self-dealing rules to include direct or

indirect overhead and a reasonable profit element. These commenters assert that

there is no existing statutory or regulatory

requirement to suggest that it is not entirely appropriate for a contributor or its affiliate to be reimbursed for overhead of any

type and, in addition, a reasonable profit

Bulletin No. 2020–39

element, if the amount of the charge is not

excessive.

Under §1.468A-5(b)(2)(v) of the existing regulations, the payment of compensation (and payment or reimbursement of

expenses) by a Fund to a disqualified person for personal services that are decommissioning costs and that are reasonable

and necessary to carrying out the exempt

purposes of the Fund are not an act of

self-dealing if such payment is purely for

the compensation (and payment or reimbursement of expenses) of such services,

but only to the extent such payment would

ordinarily be paid for like services by like

enterprises under like circumstances. See

section 4951(d)(2)(C), §§53.4951-1(a),

53.4941(d)-3(c), and 1.162-7. The fact

that the total amount of such payment is

more than the disqualified person’s actual

expenses paid for such personal services

does not cause the Fund’s payment to constitute an act of self-dealing, even if the

difference is properly characterized as

profit, or direct or indirect overhead. See

§53.4941(d)-3(c)(1). In response to the

comments on this issue, the Treasury Department and the IRS have modified the

language of §1.468A-5(b)(2)(v) to refer to

the determination of whether a payment

is reasonable under section 4951(d)(2)

(C), §§53.4951-1(a), 53.4941(d)-3(c), and

1.162-7.

Conversely, one commenter observed

there is a significant risk for abuse of the

self-dealing rules where nuclear power

plants are decommissioned by “contractors” that are also the owners of the nuclear power plant because the fees for their

services or activities may also include a

profit margin that is not properly reported for federal income tax purposes. As a

result, the tax treatment of Funds could

be exploited as a tax loophole. This commenter requested that the Treasury Department and the IRS either modify the

proposed regulations to require the reporting of profits in charges paid to related

entities (or to the taxpayers themselves)

by a Fund, and/or promulgate reporting

requirements in the implementation of

the final regulations. The Treasury Department and the IRS decline to adopt this

change because, as discussed above, the

safeguards in place under the self-dealing

rules are adequate to avoid the potential

exploitation identified by the commenter.

Bulletin No. 2020–39

3. Definition of “Substantial Completion”

in §1.468A-5(d)(3)(i)

Existing §1.468A-5(d)(3)(i) defines

the substantial completion date as “the

date that the maximum acceptable radioactivity levels mandated by the Nuclear

Regulatory Commission [NRC] with respect to a decommissioned nuclear power

plant are satisfied.” The proposed regulations amended this definition to provide

that the substantial completion date is the

date on which all Federal, state, local, and

contractual decommissioning liabilities

are fully satisfied. Because the Treasury

Department and the IRS received no comments on this proposed amendment, the

final regulations adopt this change to the

definition.

Effective/Applicability Date

Section 7805(b)(1)(A) and (B) of the

Code generally provides that no temporary, proposed, or final regulation relating

to the internal revenue laws may apply to

any taxable period ending before the earliest of (A) the date on which such regulation is filed with the Federal Register,

or (B) in the case of a final regulation, the

date on which a proposed or temporary

regulation to which the final regulation relates was filed with the Federal Register.

The proposed regulations provided that

the regulations would apply to taxable

years ending on or after the date of publication of the Treasury decision adopting

the proposed rules as final regulations in

the Federal Register. Additionally, the

preamble to the proposed regulations provided that, notwithstanding the prospective effective date, taxpayers could take

return positions consistent with the proposed regulations for taxable years ending

on or after December 29, 2016 (the date

the proposed regulations were published

in the Federal Register).

One commenter proposed that the effective and applicability dates of these regulations be amended to permit taxpayers

to rely on the provisions of the final regulations for taxable years that are open as

of the date the proposed regulations were

published in the Federal Register. After

consideration, the Treasury Department

and IRS decline to adopt this comment in

the final regulations. As noted in the pre-

581

ceding paragraph, the preamble to the proposed regulations made clear that taxpayers could take return positions consistent

with the notice of proposed rulemaking

for taxable years ending on or after December 29, 2016 (the date the proposed

regulations were published in the Federal Register). This allowed taxpayers to

request schedules of ruling amounts from

the IRS (as required by section 468A(d)(1)

and §1.468A-3) with respect to costs that

were treated as nuclear decommissioning

costs under the proposed regulations and

to deduct those amounts in taxable years

ending on or after December 29, 2016.

However, for taxpayers that have not requested and obtained a schedule of ruling

amounts for taxable years for which the

deemed payment deadline date (as defined in §1.468A-2(c)(1)) has passed as

of September 4, 2020, under §1.468-3(e)

(v), it is impossible to obtain a schedule

of ruling amounts (and therefore impossible to contribute any amount to a qualified

fund) because the request for the schedule

of ruling amounts would be submitted to

the IRS after the deemed payment deadline date. Accordingly, while the final regulations apply to taxable years ending on

or after September 4, 2020, taxpayers may

apply the rules contained in the final regulations to prior taxable years for which a

taxpayer’s deemed payment deadline has

not passed prior to September 4, 2020. See

section 7805(b)(7).

Special Analyses

Executive Orders 12866 and 13563

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

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

September 21, 2020

Treasury Department and OMB regarding

review of tax regulations. OIRA has determined that the final rulemaking is significant and subject to review under Executive Order 12866 and section 1(b) of the

Memorandum of Agreement.

1. Background and Need for

Regulation

Federal law requires operators of nuclear power plants to dismantle these

plants and safely dispose of the fuel when

the useful life of the plant has expired.

Nuclear Regulatory Commission (NRC)

rules require plant owners to demonstrate

that sufficient financial resources will be

available for decommissioning costs.1

Additionally, owners are required to report to the NRC at least every two years

the status of a plant’s decommissioning

funding. The NRC rules allow for various methods to satisfy the requirement

for dedicated decommissioning funds.

Section 468A of the Code is intended to

facilitate these requirements by allowing

taxpayers with ownership interests in nuclear power plants to elect to currently deduct the future costs of decommissioning

a nuclear power plant.2 Funds for which

an election has been made under section

468A are widely used in the industry, but

not all decommissioning funding vehicles

are section 468A funds.

The election is made pursuant to procedures provided in existing regulations

under section 468A and allows taxpayers

to make contributions to a Nuclear Decommissioning Fund (“Fund”) prior to the

time when actual decommissioning costs

are incurred.3 When amounts are actually distributed from the Fund the electing

taxpayer faces a gross income inclusion.

Generally, the income inclusion is offset

with a corresponding deduction for the

costs of decommissioning activities when

they are actually performed. Funds are

treated as separate taxable corporations,

with investment incomes subject to a fixed

20 percent rate of tax.

Section 468A(a) limits the purposes for

which amounts can be considered “nuclear

decommissioning costs.” The definition of

such costs forms the basis for a large portion of the rulemaking that has been issued

regarding 468A and furthermore forms the

bulk of the basis for the final regulations.4

As decommissioning activity increases

and technologies change, additional guidance is needed to address withdrawals

from the Fund to cover new costs and cost

categories that may arise for purposes of

decommissioning. For example, the accumulating amounts of spent nuclear fuel

and the ongoing lack of a Federal repository for that fuel have led plant owners

to store spent nuclear fuel in Independent

Spent Fuel Storage Installations (ISFSIs).

The need to independently store spent fuel

was not anticipated when previous IRS

regulations were issued. The final regulations clarify that the costs of an ISFSI and

related matters are decommissioning costs

for purposes of section 468A.

More generally, the final regulations

provide clarifications and updates to existing regulations in response to industry

requests for public guidance on this and

related issues. These clarifications generally have already been adopted by the IRS

in its private letter rulings but stakeholders have requested that the regulations be

amended to provide additional certainty.

does not only include currently deductible

costs by adding the words “or recoverable

through depreciation or amortization”

following “otherwise deductible”; (3)

broaden the definition of nuclear decommissioning costs in §1.468A-1(b)(6)(i) to

include “all land improvements and otherwise deductible expenses to be incurred

in connection with the entombment, decontamination, dismantlement, removal,

and disposal of the structures, systems

and components of a nuclear power plant,

whether that nuclear power plant will continue to produce electric energy or has

permanently ceased to produce electric

energy”; (4) broaden the exemption from

the self-dealing rules to include reimbursements to parties related to the electing taxpayer and also expand the types

of expenses permitted to be reimbursed

as nuclear decommissioning costs under

the self-dealing rules to include direct or

indirect overhead and a reasonable profit

element; and (5) provide that the substantial completion date is the date on which

all Federal, state, local, and contractual

decommissioning liabilities are fully satisfied.

2. Overview of the Final Regulations

The Treasury Department and the IRS

have assessed the benefits and costs of the

final regulations relative to a no-action

baseline reflecting anticipated Federal income tax-related behavior in the absence

of these regulations.

The regulations provide guidance on

deductions for contributions to funds

maintained for decommissioning nuclear

power plants and the use of the amounts

in those funds to decommission nuclear

plants under section 468A. Specifically,

the regulations (1) broaden the definition of nuclear decommissioning costs

in §1.468A-1(b)(6) to include expenses

related to spent fuel storage in ISFSIs

both on-site and off-site from the nuclear

power plant that generates such spent fuel;

(2) clarify that the definition of nuclear decommissioning costs in §1.468A-1(b)(6)

3. Economic Effects of the Final

Regulations

A. Baseline

B. Summary of Economic Effects

The final regulations provide certainty and clarity regarding the tax treatment

of nuclear decommissioning costs. The

Treasury Department and the IRS do not

expect that the regulations will affect the

decommissioning of nuclear plants in any

meaningful way, including the mix or

A detailed description of nuclear decommissioning and the various Nuclear Regulatory Commission (NRC) rules are beyond the scope of this document.

See generally Joint Committee on Taxation Staff, General Explanation of the Revenue Provisions of the Deficit Reduction Act of 1984, 98th Cong. 2d Sess. 270 (1984).

Electing taxpayers are permitted to contribute to the Fund amounts in accordance with a schedule of ruling amounts, which taxpayers must request and receive from the IRS. Very generally,

the schedule of ruling amounts should reflect the total cost for decommissioning the plant over the estimated useful life of the plant. Section 468A(d); §1.468A-3.

Section 468A was added by the Deficit Reduction Act of 1984. Regulations were first promulgated in 1988 and were amended in 1992, 1994, 2007, and 2010.

September 21, 2020

582

Bulletin No. 2020–39

level of activities involved in decommissioning, because the management of spent

nuclear fuel and related decommissioning

activities are regulated by the NRC and

governed by a wide range of non-tax regulations. The final regulations further do

not provide any tax-based incentives that

would affect in any substantial way the

decision to decommission, the timing of

decommissioning, or the methods chosen

to decommission any plant or plants in

general.

In the absence of these regulations, the

Treasury Department and the IRS expect

that decommissioning would generally

proceed the same. The Treasury Department and the IRS further note that the final regulations largely implement existing

industry expectations for tax treatment of

decommissioning expenses, as informed

by private letter rulings.

The Treasury Department and the IRS

also considered whether the final regulations will affect decisions for owners or

operators to plan, construct, or open new

nuclear facilities. Future decommissioning

of any new plants would take place many

years from now and any issues regarding

changes in technology can be expected to

be dealt with through future rulemaking.

Therefore, the Treasury Department and

the IRS do not expect the final regulations

to affect decisions about new facilities.

The Treasury Department and the IRS

welcome comments on these conclusions

and more generally on the economic effects of these final regulations.

Regulatory Flexibility Act

It is hereby certified that these regulations will not have a significant economic

impact on a substantial number of small

entities pursuant to the Regulatory Flexibility Act (RFA) (5 U.S.C. 601). Although

a substantial number of small entities may

be affected, the economic impact of this

rule is unlikely to be significant.

According to the Small Business Administration’s Table of Size Standards

(13 CFR 121), utilities, including nuclear electric power generation with 750 or

fewer employees (NAICS Code 221113),

are considered small entities. According

to the 2016 Statistics of U.S. Businesses

(SUSB) data, there are at least seven entities with fewer than 750 employees of the

Bulletin No. 2020–39

27 entities in the industry, which could be

considered a substantial number of small

entities for purposes of the RFA.

The economic impact of these regulations on small entities is not likely to be

significant. Section 468A of the Code allows taxpayers with ownership interests

in nuclear power plants to elect to currently deduct the future costs of decommissioning a nuclear power plant. The

procedures for this election are set forth

in existing regulations. As discussed earlier in these Special Analyses, the final

regulations provide clarifications and

updates to the existing regulations in

response to industry requests for public

guidance. These clarifications generally

have already been adopted by the IRS

in private letter rulings but stakeholders

have requested that the regulations be

amended to provide additional certainty.

Because the final rule is codifying what is

widely understood to be existing policy,

the economic impact of this rule is not

likely to be significant for any entities affected, regardless of size.

Pursuant to section 7805(f) of the

Code, the proposed regulations preceding

these final regulations were submitted to

the Chief Counsel for Advocacy of the

Small Business Administration for comment on their impact on small business

and no comments were received.

return information are confidential, as required by section 6103 of the Code.

Drafting Information

The principal author of these regulations is Jennifer C. Bernardini, Office of

Associate Chief Counsel (Passthroughs

and Special Industries). However, other

personnel from the IRS and the Treasury

Department participated in their development.

List of Subjects in 26 CFR Part 1

Income taxes, Reporting and recordkeeping requirements

Adoption of Amendments to the

Regulations

Accordingly, 26 CFR part 1 is 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. Section 1.468A-1 is amended by

adding paragraphs (b)(6)(i) and (ii) to read

as follows:

Paperwork Reduction Act

§1.468A-1 Nuclear decommissioning

costs; general rules.

There is no new collection of information contained in these regulations. The

collection of information contained in the

regulations under section 468A has been

reviewed and approved 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 1545-2091. Responses to these

collections of information are required to

obtain a tax benefit.

An agency may not conduct or sponsor,

and a person is not required to respond to,

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

the Office of Management and Budget.

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

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

revenue law. Generally, tax returns and tax

*****

(b) * * *

(6) * * *

(i) For the purpose of this title, the

term nuclear decommissioning costs or

decommissioning costs includes all expenses related to land improvements

and otherwise deductible expenses to be

incurred in connection with the entombment, decontamination, dismantlement,

removal and disposal of the structures,

systems and components of a nuclear

power plant, whether that nuclear power plant will continue to produce electric

energy or has permanently ceased to produce electric energy. Such term includes

all expenses related to land improvements

and otherwise deductible expenses to be

incurred in connection with the preparation for decommissioning, such as engineering and other planning expenses,

583

September 21, 2020

and all otherwise deductible expenses to

be incurred with respect to the plant after

the actual decommissioning occurs, such

as physical security and radiation monitoring expenses. An expense is otherwise

deductible for purposes of this paragraph

(b)(6) if it would be deductible or recoverable through depreciation or amortization

under chapter 1 of the Internal Revenue

Code without regard to section 280B.

(ii) The term nuclear decommissioning costs or decommissioning costs, as

applicable to this title, also includes expenses incurred in connection with the

construction, operation, and ultimate decommissioning of a facility used solely

to store, pending delivery to a permanent

repository or disposal, spent nuclear fuel

generated by one or more nuclear power

plants (for example, an Independent Spent

Fuel Storage Installation). Such term does

not include otherwise deductible expenses to be incurred in connection with the

disposal of spent nuclear fuel under the

Nuclear Waste Policy Act of 1982 (Pub.

L. 97-425).

*****

Par. 3. Section 1.468A-5 is amended

by revising the section heading and paragraphs (b)(2)(i) and (v) and (d)(3)(i) to

read as follows:

§1.468A-5 Nuclear decommissioning

fund—miscellaneous provisions.

*****

(b) * * *

(2) * * *

(i) A payment by a nuclear decommissioning fund for the purpose of satisfying,

in whole or in part, the liability of the

electing taxpayer for decommissioning

costs of the nuclear power plant to which

the nuclear decommissioning fund relates,

whether such payment is made to an unrelated party in satisfaction of the decommissioning liability or to the plant operator

or other otherwise disqualified person as

reimbursement solely for actual expenses

paid by such person in satisfaction of the

decommissioning liability;

*****

(v) Any act described in section

4951(d)(2)(B) or (C). Whether payments

under section 4951(c)(2)(C) are not excessive is determined under §1.162-7.

See §53.4941(d)-3(c)(1). The fact that

September 21, 2020

the amount of such payments that are not

excessive are also more than the disqualified person’s actual expenses for such

personal services does not cause the payments to constitute acts of self-dealing,

even if the difference is properly characterized as profit, or direct or indirect

overhead;

*****

(d) * * *

(3) * * *

(i) The substantial completion of the

decommissioning of a nuclear power plant

occurs on the date on which all Federal,

state, local, and contractual decommissioning requirements are fully satisfied

(the substantial completion date). Except

as otherwise provided in paragraph (d)(3)

(ii) of this section, the substantial completion date is also the termination date.

*****

Par. 4. Section 1.468A-9 is revised to

read as follows:

§1.468A-9 Applicability dates.

(a) In general. Except as provided in

paragraph (b) of this section, §§1.468A1 through 1.468A-8 are effective on December 23, 2010, and apply with respect

to taxable years ending after such date.

(b) Special rules—(1) Taxable years

ending before December 23, 2010. Special

rules that are provided for taxable years

ending on or before December 23, 2010,

such as the special rule for certain special transfers contained in §1.468A-8(a)

(4)(ii), apply with respect to such taxable

years. In addition, except as provided in

paragraph (2) of this section, a taxpayer

may apply the provisions of §§1.468A-1

through 1.468A-8 with respect to a taxable year ending on or before December

23, 2010, if all such provisions are consistently applied.

(2) Applicability of §1.468A-1(b)(6)

and §1.468A-5(b)(2)(i), (b)(2)(v), and (d)

(3)(i). The rules in §§1.468A-1(b)(6) and

1.468A-5(b)(2)(i), (b)(2)(v), and (d)(3)(i)

apply to taxable years ending on or after

September 4, 2020. Taxpayers may also

choose to apply the rules in §1.468A-1(b)

(6) and §1.468A-5(b)(2)(i), (b)(2)(v), and

(d)(3)(i) to prior taxable years for which

a taxpayer’s deemed payment deadline

(as defined in §1.468A-2(c)(1)) has not

passed prior to September 4, 2020.

584

Sunita Lough,

Deputy Commissioner for Services

and Enforcement.

Approved: March 5, 2020.

David J. Kautter,

Assistant Secretary of the Treasury

(Tax Policy).

(Filed by the Office of the Federal Register on September 3, 2020, 8:45 a.m., and published in the issue

of the Federal Register for September 4, 2020, 85

F.R. 55185)

Section 6621.—

Determination of Rate of

Interest

26 CFR 301.6621-1: Interest rate.

Rev. Rul. 2020-18

Section 6621 of the Internal Revenue Code establishes the interest rates

on overpayments and underpayments of

tax. Under section 6621(a)(1), the overpayment rate is the sum of the federal

short-term rate plus 3 percentage points (2

percentage points in the case of a corporation), except the rate for the portion of a

corporate overpayment of tax exceeding

$10,000 for a taxable period is the sum of

the federal short-term rate plus 0.5 of a

percentage point. Under section 6621(a)

(2), the underpayment rate is the sum of

the federal short-term rate plus 3 percentage points.

Section 6621(c) provides that for purposes of interest payable under section

6601 on any large corporate underpayment, the underpayment rate under section 6621(a)(2) is determined by substituting “5 percentage points” for “3

percentage points.” See section 6621(c)

and section 301.6621-3 of the Regulations on Procedure and Administration

for the definition of a large corporate

underpayment and for the rules for determining the applicable date. Section

6621(c) and section 301.6621-3 are generally effective for periods after December 31, 1990.

Section 6621(b)(1) provides that the

Secretary will determine the federal short-

Bulletin No. 2020–39

term rate for the first month in each calendar quarter. Section 6621(b)(2)(A)

provides that the federal short-term rate

determined under section 6621(b)(1) for

any month applies during the first calendar

quarter beginning after that month. Section 6621(b)(3) provides that the federal

short-term rate for any month is the federal short-term rate determined during that

month by the Secretary in accordance with

section 1274(d), rounded to the nearest

full percent (or, if a multiple of 1/2 of 1

percent, the rate is increased to the next

highest full percent).

Notice 88-59, 1988-1 C.B. 546, announced that in determining the quarterly

interest rates to be used for overpayments

and underpayments of tax under section

6621, the Internal Revenue Service will

use the federal short-term rate based on

daily compounding because that rate is

most consistent with section 6621 which,

pursuant to section 6622, is subject to daily compounding.

The federal short-term rate determined

in accordance with section 1274(d) during

July 2020 is the rate published in Revenue

Bulletin No. 2020–39

Ruling 2020-15, 2020-32 IRB 233, to take

effect beginning August 1, 2020. The federal short-term rate, rounded to the nearest

full percent, based on daily compounding

determined during the month of July 2020

is 0 percent. Accordingly, an overpayment

rate of 3 percent (2 percent in the case of a

corporation) and an underpayment rate of

3 percent are established for the calendar

quarter beginning October 1, 2020. The

overpayment rate for the portion of a corporate overpayment exceeding $10,000

for the calendar quarter beginning October

1, 2020 is 0.5 percent. The underpayment

rate for large corporate underpayments for

the calendar quarter beginning October 1,

2020, is 5 percent. These rates apply to

amounts bearing interest during that calendar quarter.

Sections 6654(a)(1) and 6655(a)(1)

provide that the underpayment rate established under section 6621 applies in determining the addition to tax under sections

6654 and 6655 for failure to pay estimated tax for any taxable year. Thus, the 3

percent rate also applies to estimated tax

underpayments for the fourth calendar

585

quarter beginning October 1, 2020. In addition, pursuant to section 6603(d)(4), the

rate of interest on section 6603 deposits

is 0 percent for the fourth calendar quarter

in 2020.

Interest factors for daily compound interest for annual rates of 0.5 percent are

published in Appendix A of this Revenue

Ruling. Interest factors for daily compound interest for annual rates of 2 percent, 3 percent and 5 percent are published

in Tables 57, 59, and 63 of Rev. Proc. 9517, 1995-1 C.B. 611, 613, and 617.

Annual interest rates to be compounded

daily pursuant to section 6622 that apply

for prior periods are set forth in the tables

accompanying this revenue ruling.

DRAFTING INFORMATION

The principal author of this revenue

ruling is Casey R. Conrad of the Office of

the Associate Chief Counsel (Procedure

and Administration). For further information regarding this revenue ruling, contact

Mr. Conrad at (202) 317-6844 (not a tollfree number).

September 21, 2020

APPENDIX A

Days

Factor

0.000013699

0.000027397

0.000041096

0.000054796

0.000068495

0.000082195

0.000095894

0.000109594

0.000123294

0.000136995

0.000150695

0.000164396

0.000178097

0.000191798

0.000205499

0.000219201

0.000232902

0.000246604

0.000260306

0.000274008

0.000287711

0.000301413

0.000315116

0.000328819

0.000342522

0.000356225

0.000369929

0.000383633

0.000397336

0.000411041

0.000424745

0.000438449

0.000452154

0.000465859

0.000479564

0.000493269

0.000506974

0.000520680

0.000534386

0.000548092

0.000561798

September 21, 2020

365 Day Year

0.5% Compound Rate 184 Days

Days

Factor

0.000863380

0.000877091

0.000890801

0.000904512

0.000918223

0.000931934

0.000945646

0.000959357

0.000973069

0.000986781

0.001000493

0.001014206

0.001027918

0.001041631

0.001055344

0.001069057

0.001082770

0.001096484

0.001110197

0.001123911

0.001137625

0.001151339

0.001165054

0.001178768

0.001192483

0.001206198

0.001219913

0.001233629

0.001247344

0.001261060

0.001274776

0.001288492

0.001302208

0.001315925

0.001329641

0.001343358

0.001357075

100

0.001370792

101

0.001384510

102

0.001398227

103

0.001411945

586

Days

125

126

127

128

129

130

131

132

133

134

135

136

137

138

139

140

141

142

143

144

145

146

147

148

149

150

151

152

153

154

155

156

157

158

159

160

161

162

163

164

165

Factor

0.001713784

0.001727506

0.001741228

0.001754951

0.001768673

0.001782396

0.001796119

0.001809843

0.001823566

0.001837290

0.001851013

0.001864737

0.001878462

0.001892186

0.001905910

0.001919635

0.001933360

0.001947085

0.001960811

0.001974536

0.001988262

0.002001988

0.002015714

0.002029440

0.002043166

0.002056893

0.002070620

0.002084347

0.002098074

0.002111801

0.002125529

0.002139257

0.002152985

0.002166713

0.002180441

0.002194169

0.002207898

0.002221627

0.002235356

0.002249085

0.002262815

Bulletin No. 2020–39

0.000575504

0.000589211

0.000602917

0.000616624

0.000630331

0.000644039

0.000657746

0.000671454

0.000685161

0.000698869

0.000712578

0.000726286

0.000739995

0.000753703

0.000767412

0.000781121

0.000794831

0.000808540

0.000822250

0.000835960

0.000849670

Bulletin No. 2020–39

104

105

106

107

108

109

110

111

112

113

114

115

116

117

118

119

120

121

122

123

124

0.001425663

0.001439381

0.001453100

0.001466818

0.001480537

0.001494256

0.001507975

0.001521694

0.001535414

0.001549133

0.001562853

0.001576573

0.001590293

0.001604014

0.001617734

0.001631455

0.001645176

0.001658897

0.001672619

0.001686340

0.001700062

587

166

167

168

169

170

171

172

173

174

175

176

177

178

179

180

181

182

183

184

0.002276544

0.002290274

0.002304004

0.002317734

0.002331465

0.002345195

0.002358926

0.002372657

0.002386388

0.002400120

0.002413851

0.002427583

0.002441315

0.002455047

0.002468779

0.002482511

0.002496244

0.002509977

0.002523710

September 21, 2020

Days

Factor

0.000013661

0.000027323

0.000040984

0.000054646

0.000068308

0.000081970

0.000095632

0.000109295

0.000122958

0.000136620

0.000150283

0.000163947

0.000177610

0.000191274

0.000204938

0.000218602

0.000232266

0.000245930

0.000259595

0.000273260

0.000286924

0.000300590

0.000314255

0.000327920

0.000341586

0.000355252

0.000368918

0.000382584

0.000396251

0.000409917

0.000423584

0.000437251

0.000450918

0.000464586

0.000478253

0.000491921

0.000505589

0.000519257

0.000532925

0.000546594

0.000560262

0.000573931

September 21, 2020

366 Day Year

0.5% Compound Rate 184 Days

Days

Factor

0.000861020

0.000874693

0.000888366

0.000902040

0.000915713

0.000929387

0.000943061

0.000956735

0.000970409

0.000984084

0.000997758

0.001011433

0.001025108

0.001038783

0.001052459

0.001066134

0.001079810

0.001093486

0.001107162

0.001120839

0.001134515

0.001148192

0.001161869

0.001175546

0.001189223

0.001202900

0.001216578

0.001230256

0.001243934

0.001257612

0.001271291

0.001284969

0.001298648

0.001312327

0.001326006

0.001339685

0.001353365

100

0.001367044

101

0.001380724

102

0.001394404

103

0.001408085

104

0.001421765

588

Days

125

126

127

128

129

130

131

132

133

134

135

136

137

138

139

140

141

142

143

144

145

146

147

148

149

150

151

152

153

154

155

156

157

158

159

160

161

162

163

164

165

166

Factor

0.001709097

0.001722782

0.001736467

0.001750152

0.001763837

0.001777522

0.001791208

0.001804893

0.001818579

0.001832265

0.001845951

0.001859638

0.001873324

0.001887011

0.001900698

0.001914385

0.001928073

0.001941760

0.001955448

0.001969136

0.001982824

0.001996512

0.002010201

0.002023889

0.002037578

0.002051267

0.002064957

0.002078646

0.002092336

0.002106025

0.002119715

0.002133405

0.002147096

0.002160786

0.002174477

0.002188168

0.002201859

0.002215550

0.002229242

0.002242933

0.002256625

0.002270317

Bulletin No. 2020–39

0.000587600

0.000601269

0.000614939

0.000628608

0.000642278

0.000655948

0.000669618

0.000683289

0.000696959

0.000710630

0.000724301

0.000737972

0.000751643

0.000765315

0.000778986

0.000792658

0.000806330

0.000820003

0.000833675

0.000847348

Bulletin No. 2020–39

105

106

107

108

109

110

111

112

113

114

115

116

117

118

119

120

121

122

123

124

0.001435446

0.001449127

0.001462808

0.001476489

0.001490170

0.001503852

0.001517533

0.001531215

0.001544897

0.001558580

0.001572262

0.001585945

0.001599628

0.001613311

0.001626994

0.001640678

0.001654361

0.001668045

0.001681729

0.001695413

589

167

168

169

170

171

172

173

174

175

176

177

178

179

180

181

182

183

184

0.002284010

0.002297702

0.002311395

0.002325087

0.002338780

0.002352473

0.002366167

0.002379860

0.002393554

0.002407248

0.002420942

0.002434636

0.002448331

0.002462025

0.002475720

0.002489415

0.002503110

0.002516806

September 21, 2020

TABLE OF INTEREST RATES

PERIODS BEFORE JUL. 1, 1975 - PERIODS ENDING DEC. 31, 1986

OVERPAYMENTS AND UNDERPAYMENTS

PERIOD

Before

Jul.

Feb.

Jan.

Jul.

Jan.

Jul.

Jan.

Jul.

Jan.

Jul.

1975–Jan.

1976–Jan.

1978–Jan.

1980–Jan.

1982–Dec.

1983–Jun.

1983–Dec.

1984–Jun.

1984–Dec.

1985–Jun.

1985–Dec.

1986–Jun.

1986–Dec.

RATE

31,

30,

31,

30,

31,

30,

31,

30,

31,

1975

1976

1978

1980

1982

1983

1984

1985

1986

12%

20%

16%

11%

13%

11%

10%

Table

In 1995-1 C.B.

DAILY RATE TABLE

pg.

37,

pg.

27,

pg.

75,

pg.

75,

pg.

31,

pg.

27,

pg.

25,

pg.

23,

pg.

557

559

558

557

560

591

581

629

585

581

579

577

TABLE OF INTEREST RATES

FROM JAN. 1, 1987 - Dec. 31, 1998

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

1987–Mar.

1987–Jun.

1987–Sep.

1987–Dec.

1988–Mar.

1988–Jun.

1988–Sep.

1988–Dec.

1989–Mar.

1989–Jun.

1989–Sep.

1989–Dec.

1990–Mar.

1990–Jun.

1990–Sep.

1990–Dec.

1991–Mar.

September 21, 2020

31,

30,

31,

30,

31,

30,

31,

30,

31,

1987

1988

1989

1990

1991

RATE

10%

11%

10%

590

OVERPAYMENTS

1995-1 C.B.

TABLE

575

577

627

625

627

579

581

579

UNDERPAYMENTS

1995-1 C.B. RATE

RATE

TABLE

577

10%

579

11%

629

10%

627

10%

627

11%

629

11%

581

12%

583

12%

583

11%

581

11%

581

11%

581

11%

581

11%

581

11%

581

Bulletin No. 2020–39

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

1991–Jun.

1991–Sep.

1991–Dec.

1992–Mar.

1992–Jun.

1992–Sep.

1992–Dec.

1993–Mar.

1993–Jun.

1993–Sep.

1993–Dec.

1994–Mar.

1994–Jun.

1994–Sep.

1994–Dec.

1995–Mar.

1995–Jun.

1995–Sep.

1995–Dec.

1996–Mar.

1996–Jun.

1996–Sep.

1996–Dec.

1997–Mar.

1997–Jun.

1997–Sep.

1997–Dec.

1998–Mar.

1998–Jun.

1998–Sep.

1998–Dec.

Bulletin No. 2020–39

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

1991

1992

1993

1994

1995

1996

1997

1998

591

577

623

621

619

571

573

575

577

575

623

621

623

575

573

10%

579

625

623

621

573

575

577

579

577

625

623

625

577

575

September 21, 2020

TABLE OF INTEREST RATES

FROM JANUARY 1, 1999 - PRESENT

NONCORPORATE OVERPAYMENTS AND UNDERPAYMENTS

1995-1 C.B.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

September 21, 2020

1999–Mar.

1999–Jun.

1999–Sep.

1999–Dec.

2000–Mar.

2000–Jun.

2000–Sep.

2000–Dec.

2001–Mar.

2001–Jun.

2001–Sep.

2001–Dec.

2002–Mar.

2002–Jun.

2002–Sep.

2002–Dec.

2003–Mar.

2003–Jun.

2003–Sep.

2003–Dec.

2004–Mar.

2004–Jun.

2004–Sep.

2004–Dec.

2005–Mar.

2005–Jun.

2005–Sep.

2005–Dec.

2006–Mar.

2006–Jun.

2006–Sep.

2006–Dec.

2007–Mar.

2007–Jun.

2007–Sep.

2007–Dec.

2008–Mar.

2008–Jun.

2008–Sep.

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

592

RATE

TABLE

PAGE

573

575

623

625

577

575

573

571

569

567

615

617

615

617

569

571

573

575

621

619

617

Bulletin No. 2020–39

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Bulletin No. 2020–39

2008–Dec.

2009–Mar.

2009–Jun.

2009–Sep.

2009–Dec.

2010–Mar.

2010–Jun.

2010–Sep.

2010–Dec.

2011–Mar.

2011–Jun.

2011-—Sep.

2011–Dec.

2012–Mar.

2012–Jun.

2012–Sep.

2012–Dec.

2013–Mar.

2013–Jun.

2013–Sep.

2013–Dec.

2014–Mar.

2014–Jun.

2014–Sep.

2014–Dec.

2015–Mar.

2015–Jun.

2015–Sep.

2015–Dec.

2016–Mar.

2016–Jun.

2016–Sep.

2016–Dec.

2017–Mar.

2017–Jun.

2017–Sep.

2017–Dec.

2018–Mar.

2018–Jun.

2018–Sep.

2018–Dec.

2019–Mar.

2019–Jun.

2019–Sep.

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

593

619

569

567

565

567

565

613

565

613

615

567

569

571

569

September 21, 2020

Oct.

Jan.

Apr.

Jul.

Oct.

September 21, 2020

2019–Dec.

2020–Mar.

2020–Jun.

2020–Sep.

2020–Dec.

31,

30,

31,

2019

2020

594

569

617

613

Bulletin No. 2020–39

TABLE OF INTEREST RATES

FROM JANUARY 1, 1999 - PRESENT

CORPORATE OVERPAYMENTS AND UNDERPAYMENTS

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

1999–Mar.

1999–Jun.

1999–Sep.

1999–Dec.

2000–Mar.

2000–Jun.

2000–Sep.

2000–Dec.

2001–Mar.

2001–Jun.

2001–Sep.

2001–Dec.

2002–Mar.

2002–Jun.

2002–Sep.

2002–Dec.

2003–Mar.

2003–Jun.

2003–Sep.

2003–Dec.

2004–Mar.

2004–Jun.

2004–Sep.

2004–Dec.

2005–Mar.

2005–Jun.

2005–Sep.

2005–Dec.

2006–Mar.

2006–Jun.

2006–Sep.

2006–Dec.

2007–Mar.

2007–Jun.

2007–Sep.

2007–Dec.

2008–Mar.

2008–Jun.

2008–Sep.

Bulletin No. 2020–39

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

OVERPAYMENTS

1995-1 C.B.

RATE

TABLE

571

573

621

623

575

573

571

569

567

565

613

615

613

615

567

569

571

573

619

617

615

595

UNDERPAYMENTS

1995-1 C.B.

RATE

TABLE

573

575

623

625

577

575

573

571

569

567

615

617

615

617

569

571

573

575

621

619

617

September 21, 2020

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

2008–Dec.

2009–Mar.

2009–Jun.

2009–Sep.

2009–Dec.

2010–Mar.

2010–Jun.

2010–Sep.

2010–Dec.

2011–Mar.

2011–Jun.

2011–Sep.

2011–Dec.

2012–Mar.

2012–Jun.

2012–Sep.

2012–Dec.

2013–Mar.

2013–Jun.

2013–Sep.

2013–Dec.

2014–Mar.

2014–Jun.

2014–Sep.

2014–Dec.

2015–Mar.

2015—Jun.

2015–Sep.

2015–Dec.

2016–Mar.

2016–Jun.

2016–Sep.

2016–Dec.

2017–Mar.

2017–Jun.

2017–Sep.

2017–Dec.

2018–Mar.

2018–Jun.

2018–Sep.

2018–Dec.

2019–Mar.

2019–Jun.

2019–Sep.

2019–Dec.

September 21, 2020

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,,

31,

30,

31,

30,

31,

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

596

617

567

565

563

565

563

611

563

611

613

565

567

569

567

619

569

567

565

567

565

613

565

613

615

567

569

571

569

Bulletin No. 2020–39

Jan.

Apr.

Jul.

Oct.

2020–Mar.

2020–Jun.

2020–Sep.

2020–Dec.

Bulletin No. 2020–39

31,

30,

31,

2020

597

615

611

617

613

September 21, 2020

TABLE OF INTEREST RATES

FOR LARGE CORPORATE UNDERPAYMENTS

FROM JANUARY 1, 1991 - PRESENT

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

September 21, 2020

1991–Mar.

1991–Jun.

1991–Sep.

1991–Dec.

1992–Mar.

1992–Jun.

1992–Sep.

1992–Dec.

1993–Mar.

1993–Jun.

1993–Sep.

1993–Dec.

1994–Mar.

1994–Jun.

1994–Sep.

1994–Dec.

1995–Mar.

1995–Jun.

1995–Sep.

1995–Dec.

1996–Mar.

1996–Jun.

1996–Sep.

1996–Dec.

1997–Mar.

1997–Jun.

1997–Sep.

1997–Dec.

1998–Mar.

1998–Jun.

1998–Sep.

1998–Dec.

1999–Mar.

1999–Jun.

1999–Sep.

1999–Dec.

2000–Mar.

2000–Jun.

2000–Sep.

2000–Dec.

2001–Mar.

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

598

RATE

13%

12%

11%

10%

11%

12%

11%

10%

11%

10%

11%

1995-1 C.B.

TABLE

585

583

629

627

625

577

579

581

583

581

629

627

629

581

579

577

579

627

629

581

Bulletin No. 2020–39

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Bulletin No. 2020–39

2001–Jun.

2001–Sep.

2001–Dec.

2002–Mar.

2002–Jun.

2002–Sep.

2002–Dec.

2003–Mar.

2003–Jun.

2003–Sep.

2003–Dec.

2004–Mar.

2004–Jun.

2004–Sep.

2004–Dec.

2005–Mar.

2005–Jun.

2005–Sep.

2005–Dec.

2006–Mar.

2006–Jun.

2006–Sep.

2006–Dec.

2007–Mar.

2007–Jun.

2007–Sep.

2007–Dec.

2008–Mar.

2008–Jun.

2008–Sep.

2008–Dec.

2009–Mar.

2009–Jun.

2009–Sep.

2009–Dec.

2010–Mar.

2010–Jun.

2010–Sep.

2010–Dec.

2011–Mar.

2011–Jun.

2011–Sep.

2011–Dec.

2012–Mar.

2012–Jun.

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

599

10%

579

577

575

573

571

619

621

619

621

573

575

577

579

625

623

621

623

573

571

569

571

569

617

September 21, 2020

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

Jan.

Apr.

Jul.

Oct.

September 21, 2020

2012–Sep.

2012–Dec.

2013–Mar.

2013–Jun.

2013–Sep.

2013–Dec.

2014–Mar.

2014–Jun.

2014–Sep.

2014–Dec.

2015–Mar.

2015–Jun.

2015–Sep.

2015–Dec.

2016–Mar.

2016-—Jun.

2016-—Sep.

2016-—Dec.

2017–Mar.

2017–Jun.

2017–Sep.

2017–Dec.

2018–Mar.

2018–Jun.

2018–Sep.

2018–Dec.

2019–Mar.

2019–Jun.

2019–Sep.

2019–Dec.

2020–Mar.

2020–Jun.

2020–Sep.

2020–Dec.

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

30,

31,

2012

2013

2014

2015

2016

2017

2018

2019

2020

600

617

569

617

619

571

573

575

573

621

617

Bulletin No. 2020–39

TABLE OF INTEREST RATES FOR CORPORATE

OVERPAYMENTS EXCEEDING $10,000

FROM JANUARY 1, 1995 – PRESENT

1995-1 C.B.

RATE

TABLE

Jan.

1995–Mar.

31,

1995

6.5%

572

Apr.

1995–Jun.

30,

1995

7.5%

574

Jul.

1995–Sep.

30,

1995

6.5%

572

Oct.

1995–Dec.

31,

1995

6.5%

572

Jan.

1996–Mar.

31,

1996

6.5%

620

Apr.

1996–Jun.

30,

1996

5.5%

618

Jul.

1996–Sep.

30,

1996

6.5%

620

Oct.

1996–Dec.

31,

1996

6.5%

620

Jan.

1997–Mar.

31,

1997

6.5%

572

Apr.

1997–Jun.

30,

1997

6.5%

572

Jul.

1997–Sep.

30,

1997

6.5%

572

Oct.

1997–Dec.

31,

1997

6.5%

572

Jan.

1998–Mar.

31,

1998

6.5%

572

Apr.

1998–Jun.

30,

1998

5.5%

570

Jul.

1998–Sep.

30,

1998

5.5%

570

Oct.

1998–Dec.

31,

1998

5.5%

570

Jan.

1999–Mar.

31,

1999

4.5%

568

Apr.

1999–Jun.

30,

1999

5.5%

570

Jul.

1999–Sep.

30,

1999

5.5%

570

Oct.

1999–Dec.

31,

1999

5.5%

570

Jan.

2000–Mar.

31,

2000

5.5%

618

Apr.

2000–Jun.

30,

2000

6.5%

620

Jul.

2000–Sep.

30,

2000

6.5%

620

Oct.

2000–Dec.

31,

2000

6.5%

620

Jan.

2001–Mar.

31,

2001

6.5%

572

Apr.

2001–Jun.

30,

2001

5.5%

570

Jul.

2001–Sep.

30,

2001

4.5%

568

Oct.

2001–Dec.

31,

2001

4.5%

568

Jan.

2002–Mar.

31,

2002

3.5%

566

Apr.

2002–Jun.

30,

2002

3.5%

566

Jul.

2002–Sep.

30,

2002

3.5%

566

Oct.

2002–Dec.

31,

2002

3.5%

566

Jan.

2003–Mar.

31,

2003

2.5%

564

Apr.

2003–Jun.

30,

2003

2.5%

564

Jul.

2003–Sep.

30,

2003

2.5%

564

Oct.

2003–Dec.

31,

2003

1.5%

562

Jan.

2004–Mar.

31,

2004

1.5%

610

Apr.

2004–Jun.

30,

2004

2.5%

612

Bulletin No. 2020–39

601

September 21, 2020

Jul.

2004–Sep.

30,

2004

1.5%

610

Oct.

2004–Dec.

31,

2004

2.5%

612

Jan.

2005–Mar.

31,

2005

2.5%

564

Apr.

2005–Jun.

30,

2005

3.5%

566

Jul.

2005–Sep.

30,

2005

3.5%

566

Oct.

2005–Dec.

31,

2005

4.5%

568

Jan.

2006–Mar.

31,

2006

4.5%

568

Apr.

2006–Jun.

30,

2006

4.5%

568

Jul.

2006–Sep.

30,

2006

5.5%

570

Oct.

2006–Dec.

31,

2006

5.5%

570

Jan.

2007–Mar.

31,

2007

5.5%

570

Apr.

2007–Jun.

30,

2007

5.5%

570

Jul.

2007–Sep.

30,

2007

5.5%

570

Oct.

2007–Dec.

31,

2007

5.5%

570

Jan.

2008–Mar.

31,

2008

4.5%

616

Apr.

2008–Jun.

30,

2008

3.5%

614

Jul.

2008–Sep.

30,

2008

2.5%

612

Oct.

2008–Dec.

31,

2008

3.5%

614

Jan.

2009–Mar.

31,

2009

2.5%

564

Apr.

2009–Jun.

30,

2009

1.5%

562

Jul.

2009–Sep.

30,

2009

1.5%

562

Oct.

2009–Dec.

31,

2009

1.5%

562

Jan.

2010–Mar.

31,

2010

1.5%

562

Apr.

2010–Jun.

30,

2010

1.5%

562

Jul.

2010–Sep.

30,

2010

1.5%

562

Oct.

2010–Dec.

31,

2010

1.5%

562

Jan.

2011–Mar.

31,

2011

0.5%*

Apr.

2011–Jun.

30,

2011

1.5%

562

Jul.

2011-—Sep.

30,

2011

1.5%

562

Oct.

2011–Dec.

31,

2011

0.5%*

Jan.

2012–Mar.

31,

2012

0.5%*

Apr.

2012–Jun.

30,

2012

0.5%*

Jul.

2012–Sep.

30,

2012

0.5%*

Oct.

2012–Dec.

31,

2012

0.5%*

Jan.

2013–Mar.

31,

2013

0.5%*

Apr.

2013–Jun.

30,

2013

0.5%*

Jul.

2013–Sep.

30,

2013

0.5%*

Oct.

2013–Dec.

31,

2013

0.5%*

Jan.

2014–Mar.

31,

2014

0.5%*

Apr.

2014–Jun.

30,

2014

0.5%*

Jul.

2014–Sep.

30,

2014

0.5%*

Oct.

2014–Dec.

31,

2014

0.5%*

September 21, 2020

602

Bulletin No. 2020–39

Jan.

2015–Mar.

31,

2015

0.5%*

Apr.

2015–Jun.

30,

2015

0.5%*

Jul.

2015–Sep.

30,

2015

0.5%*

Oct.

2015–Dec.

31,

2015

0.5%*

Jan.

2016–Mar.

31,

2016

0.5%*

Apr.

2016–Jun.

30,

2016

1.5%

610

Jul.

2016–Sep.

30,

2016

1.5%

610

Oct.

2016–Dec.

31,

2016

1.5%

610

Jan.

2017–Mar.

31,

2017

1.5%

562

Apr.

2017–Jun.

30,

2017

1.5%

562

Jul.

2017–Sep.

30,

2017

1.5%

562

Oct.

2017–Dec.

31,

2017

1.5%

562

Jan.

2018–Mar.

31,

2018

1.5%

562

Apr.

2018–Jun.

30,

2018

2.5%

564

Jul.

2018–Sep.

30,

2018

2.5%

564

Oct.

2018–Dec.

31,

2018

2.5%

564

Jan.

2019–Mar.

31,

2019

3.5%

566

Apr.

2019–Jun.

30,

2019

3.5%

566

Jul.

2019–Sep.

30,

2019

2.5%

564

Oct.

2019–Dec.

31,

2019

2.5%

564

Jan.

2020–Mar.

31,

2020

2.5%

612

Apr.

2020–Jun.

30,

2020

2.5%

612

Jul.

2020–Sep.

30,

2020

0.5%*

Oct.

2020–Dec.

31,

2020

0.5%*

* The asterisk reflects the interest factors for daily compound interest for annual rates of 0.5 percent published in Appendix A of

this Revenue Ruling.

Bulletin No. 2020–39

603

September 21, 2020

Part III

S Corporation Guidance

under Section 958 (Rules

for Determining Stock

Ownership) and Guidance

Regarding the Treatment

of Qualified Improvement

Property under the

Alternative Depreciation

System for Purposes of

the QBAI Rules for FDII and

GILTI

Notice 2020-69

SECTION 1. OVERVIEW

This notice announces that the Department of the Treasury (Treasury Department) and the Internal Revenue Service

(IRS) intend to issue regulations addressing the application of §§ 951 and 951A

of the Internal Revenue Code (Code)

to certain S corporations (as defined in

§ 1361(a)(1)) with accumulated earnings

and profits, as described in § 316(a)(1)

(AE&P). This notice also announces that

the Treasury Department and the IRS intend to issue regulations addressing the

treatment of qualified improvement property (QIP) under the alternative depreciation system (ADS) of § 168(g) for purposes of calculating qualified business asset

investment (QBAI) for purposes of the

foreign-derived intangible income (FDII)

and global intangible low-taxed income

(GILTI) provisions, which were added to

the Code by the enactment of Public Law

No. 115-97, 131 Stat. 2054 (2017), commonly referred to as the Tax Cuts and Jobs

Act (TCJA).

Section 2 of this notice provides a

summary of the current and proposed

treatment of domestic partnerships for

purposes of §§ 951 and 951A and the application of these rules to S corporations

under § 1373(a). Section 2 of this notice

also provides background on §§ 168,

250, and 951A as they relate to QBAI

for purposes of FDII and GILTI and the

treatment of QIP under the ADS. Section

September 21, 2020

3 of this notice describes proposed regulations that the Treasury Department

and the IRS intend to issue concerning

the application of §§ 951 and 951A to

S corporations (forthcoming S corporation regulations). Section 4 of this notice

describes proposed regulations that the

Treasury Department and the IRS intend

to issue concerning the treatment of QIP

under the ADS for purposes of calculating QBAI for FDII and GILTI (forthcoming QIP-QBAI regulations). Section 5 of

this notice describes the proposed applicability dates of the forthcoming regulations. Section 6 of this notice requests

comments. Section 7 of this notice provides information regarding collections

of information. Section 8 of this notice

provides drafting and contact information.

SECTION 2. BACKGROUND

.01 Overview of §§ 951 and 951A

Section 951(a) of the Code generally

requires a United States shareholder (as

defined in § 951(b)) (U.S. shareholder),

to include in its gross income its pro rata

share of subpart F income (as defined in

§ 952) of a controlled foreign corporation (as defined in § 957) (CFC) and the

amount determined under § 956 with respect to such shareholder for such year

(but only to the extent not excluded from

gross income under § 959(a)(2)) (subpart

F inclusion).

Section 951A(a) requires a U.S. shareholder of any CFC for any taxable year

to include in gross income the shareholder’s GILTI for such taxable year (GILTI

inclusion amount). The U.S. shareholder’s GILTI inclusion amount is calculated

based on certain items – such as tested

income, tested loss, and QBAI – of each

CFC owned by the U.S. shareholder (tested items). See § 1.951A-1(c) of the Income Tax Regulations. In general, a U.S.

shareholder’s GILTI inclusion amount is

determined by reference to the U.S. shareholder’s pro rata share of the tested items

based on the stock of all the CFCs that the

U.S. shareholder owns within the meaning of § 958(a). See § 951A(e)(1) (cross

referencing § 951(a)(2)). The GILTI provisions in § 951A, enacted in § 14201(a)

of the TCJA, apply to taxable years of for-

604

eign corporations beginning after December 31, 2017, and to taxable years of U.S.

shareholders in which or with which such

taxable years of foreign corporations end.

See § 14201(d) of the TCJA.

Section 951(b) defines a U.S. shareholder, with respect to any foreign corporation, as a United States person (U.S.

person) that owns (within the meaning of

§ 958(a)), or is considered as owning by

applying the ownership rules of § 958(b),

10 percent or more of the total combined

voting power of all classes of stock entitled to vote of such corporation or 10 percent or more of the value of all shares of all

classes of stock of the foreign corporation.

See also § 1.951-1(g). Section 957(c) generally defines a U.S. person for purposes

of subpart F by reference to § 7701(a)(30),

which defines a U.S. person as a citizen or

resident of the United States, a domestic

partnership, a domestic corporation, and

certain estates and trusts.

.02 S corporations

For purposes of subparts A and F of

part III (§§ 901 through 909 and §§ 951

through 965, respectively), and part V

(§ 999), of subchapter N of chapter 1,

§ 1373(a) provides that an S corporation

is treated as a partnership and the shareholders of the S corporation are treated

as partners of the partnership. Section

1373(a) thus causes S corporations, which

are domestic corporations, to be treated in

the same manner as domestic partnerships

for purposes of §§ 951 and 951A.

(1) Entity Treatment of Domestic Partnerships and S Corporations

Historically, a domestic partnership or

S corporation was generally treated as a

U.S. shareholder that had a subpart F inclusion with respect to a CFC owned under § 958(a) by the partnership or S corporation (entity treatment). Under entity

treatment, an S corporation determines its

subpart F inclusion at the entity level. An

S corporation shareholder takes into account the shareholder’s pro rata share of

the S corporation’s subpart F inclusion,

regardless of whether the S corporation

shareholder itself is a U.S. shareholder

of the CFC under § 951(b). See generally

§ 1366(a). A similar approach applied to

domestic partnerships under entity treatment.

Bulletin No. 2020–39

(2) Aggregate Treatment of Partners of

Foreign Partnerships

Under § 958(a)(2), a partner in a foreign partnership is treated as owning proportionately the stock of a CFC owned by

the foreign partnership (aggregate treatment) for purposes of subpart F, which includes § 951A. Accordingly, if a partner in

a foreign partnership is a U.S. shareholder

with respect to a CFC owned by the partnership, the U.S. shareholder-partner will

directly include in gross income the pro

rata share of subpart F income of the CFC

and directly determine the partner’s GILTI

inclusion amount by reference to the pro

rata share of tested items of the CFC. See

§§ 951(a) and 951A(e)(1).

(3) Hybrid Treatment for GILTI Purposes Under 2018 Proposed Regulations

On October 10, 2018, the Treasury Department and the IRS published a notice of

proposed rulemaking (REG-104390-18)

in the Federal Register (83 FR 51072) under § 951A (2018 proposed regulations).

Section 1.951A-5 of the 2018 proposed

regulations (proposed § 1.951A-5) provided a “hybrid approach” to a domestic partnership that is a U.S. shareholder

(U.S. shareholder partnership) of a CFC

(partnership-owned CFC). Under the hybrid approach, a U.S. shareholder partnership would determine its GILTI inclusion

amount, and the partners of the partnership that were not also U.S. shareholders

of the partnership-owned CFC would take

into account their distributive share of the

partnership’s GILTI inclusion amount.

See proposed § 1.951A-5(b). Partners

that also were U.S. shareholders of a partnership-owned CFC would not take into

account their distributive share of the

partnership’s GILTI inclusion amount.

Instead, such partners would be treated as

proportionately owning the stock of the

partnership-owned CFC within the meaning of § 958(a) as if the domestic partnership were a foreign partnership. See proposed § 1.951A-5(c).

Because § 1373(a) treats S corporations

as partnerships for purposes of subpart F,

the hybrid approach in the 2018 proposed

regulations also applied to S corporations

that held stock of a CFC. For example,

proposed § 1.951A-5(g)(5) (Example 5)

applied entity treatment (outlined in section 2.02(1) of this notice) to an S corporation shareholder that was not a U.S.

Bulletin No. 2020–39

shareholder of a CFC owned by the S corporation (S corporation-owned CFC), and

aggregate treatment (outlined in section

2.02(2) of this notice) to an S corporation

shareholder that was a U.S. shareholder of

the S corporation-owned CFC.

(4) Aggregate Treatment for GILTI

Purposes under 2019 Final Regulations

On June 21, 2019, the Treasury Department and the IRS published final regulations (T.D. 9866) in the Federal Register (84 FR 29288) under § 951A (final

regulations). The final regulations did not

adopt the hybrid approach included in the

2018 proposed regulations and instead

adopted aggregate treatment for domestic

partnerships. Accordingly, under the final

regulations, a domestic partnership does

not have a GILTI inclusion amount, and

therefore no partner of the partnership has

a distributive share of a GILTI inclusion

amount. See § 1.951A-1(e)(1). Rather,

for purposes of determining the GILTI

inclusion amount of any partner of a domestic partnership, each partner is treated

as proportionately owning the stock of a

CFC owned by the partnership within the

meaning of § 958(a) in the same manner as if the domestic partnership were a

foreign partnership. Because only a U.S.

person that is a U.S. shareholder can have

a GILTI inclusion amount, a partner that

is not a U.S. shareholder of a partnership-owned CFC does not have a GILTI

inclusion amount determined by reference

to the partnership-owned CFC. Section

1.951A-1(e)(1) applies to taxable years of

foreign corporations beginning after December 31, 2017, and to taxable years of

U.S. shareholders in which or with which

such taxable years of foreign corporations

end. See § 1.951A-7.

(5) Aggregate Treatment for Subpart F

and GILTI Purposes Under 2019 Proposed

Regulations

On June 21, 2019, concurrent with the

final regulations, the Treasury Department

and the IRS published a notice of proposed rulemaking (REG-101828-19) in

the Federal Register (84 FR 29114) under

§ 958 (2019 proposed regulations). Section 1.958-1 of the 2019 proposed regulations (proposed § 1.958-1) mirrored the

aggregate treatment of domestic partnerships for purposes of GILTI inclusions as

set forth in the final regulations, and also

extended it to apply for purposes of sub-

605

part F inclusions. See proposed § 1.9581(d)(1). Accordingly, subject to certain

exceptions in proposed § 1.958-1(d)(2),

for purposes of §§ 951 and 951A and any

other provision that applies by reference

to § 951 or 951A, the 2019 proposed regulations provided that a domestic partnership is not treated as owning stock of

a foreign corporation within the meaning

of § 958(a); instead, a domestic partnership is treated in the same manner as a

foreign partnership for purposes of determining the persons that own stock of the

foreign corporation within the meaning of

§ 958(a). See proposed § 1.958-1(d)(1).

Under proposed § 1.958-1(d)(2), a domestic partnership is treated as an entity for

purposes of determining whether any U.S.

person (including the domestic partnership) is a U.S. shareholder, whether any

U.S. shareholder is a controlling domestic shareholder (as defined in § 1.964-1(c)

(5)), or whether any foreign corporation is

a CFC.

Consistent with the final regulations

with respect to GILTI, under the 2019

proposed regulations a partner that is not

a U.S. shareholder with respect to a partnership-owned CFC does not take into

account a subpart F inclusion or GILTI

inclusion amount by reference to the partnership-owned CFC.

The 2019 proposed regulations are proposed to apply to taxable years of foreign

corporations beginning on or after the

date of publication of the Treasury decision adopting the rules as final regulations

in the Federal Register. See proposed

§ 1.958-1(d)(4). Subject to a consistency

requirement, however, the 2019 proposed

regulations provide that a domestic partnership may apply the regulations, once

finalized, to taxable years of a foreign

corporation beginning after December 31,

2017, and to taxable years of the domestic

partnership in which or with which such

taxable years of the foreign corporation

end. See id.

(6) Applicability to S Corporations

Under § 1373(a), an S corporation is

treated as a partnership and its shareholders as partners for purposes of §§ 951 and

951A, among other provisions. Therefore,

for purposes of determining a GILTI inclusion amount under § 1.951A-1(e), as

well as determining a subpart F inclusion or GILTI inclusion amount under

September 21, 2020

proposed § 1.958-1(d), an S corporation

is not treated as owning stock of a foreign corporation within the meaning of

§ 958(a) but instead is treated in the same

manner as a foreign partnership (each

S corporation shareholder is treated as

proportionately owning the stock of the

S corporation-owned CFC). Under this

aggregate treatment, § 961(a) applies to

increase a U.S. shareholder’s basis in the

shares of the S corporation when the U.S.

shareholder has a subpart F inclusion or

GILTI inclusion amount attributable to

the S corporation-owned CFC. The preamble to the final regulations stated that

the Treasury Department and the IRS are

studying the application of § 1373(a) with

respect to § 951A, as well as the broader

implications of treating S corporations as

partnerships for purposes of subpart F, and

requested comments. See 84 FR 29317.

(7) Distribution Rules Regarding S

Corporations

Paragraphs (b) and (c) of § 1368 provide for the annual treatment of distributions of property made by an S corporation

with respect to its stock to which (but for

§ 1368(a)) § 301(c) would apply. Section

1368(b) addresses the treatment of such

distributions by an S corporation that does

not have AE&P. Specifically, § 1368(b)(1)

provides that a distribution by an S corporation is not included in the gross income

of the shareholder to the extent that the

amount of the distribution does not exceed

the adjusted basis of the S corporation’s

stock. Section 1368(b)(2) provides that, if

the amount of the distribution exceeds the

adjusted basis of the S corporation’s stock,

that excess is treated as gain from the sale

or exchange of property.

Section 1368(c) addresses the treatment of distributions by an S corporation that has AE&P (for example, if the

S corporation had generated earnings and

profits during its prior status as a C corporation) and therefore has an accumulated

adjustments account (AAA), as defined

by § 1368(e)(1). AE&P does not include

amounts that would increase an S corporation’s AAA. See § 1371(c). The S corporation’s AAA achieves dual congressional

purposes by ensuring that (i) distributions

of income already taxed to its shareholders will be tax-free and (ii) distributions of

AE&P generated by a former C corporation will be taxed as dividends (as defined

September 21, 2020

in § 316) when ultimately distributed. See

S. Rept. 97-354, at 3258, 97th Cong. 2nd

Sess. (Sept. 29, 1982). Accordingly, to

achieve the first-described congressional

purpose, an S corporation’s AAA functions similarly to the basis-adjustment

rules set forth in § 1367 and is adjusted

positively to account for income taxed to

its shareholders. See § 1368(e)(1). AAA is

limited to income generated by the corporation during its status as an S corporation

and preserves the single-level-of-tax treatment to S corporation shareholders that is

fundamental to subchapter S of chapter 1

of the Code (subchapter S).

With regard to distributions of property by S corporations with AE&P (relating

to the second-described congressional

purpose), § 1368(c) first applies the distribution to the S corporation’s AAA. Specifically, § 1368(c)(1) provides that the

treatment of the portion of the distribution

that does not exceed the S corporation’s

AAA is governed by § 1368(b), and not

included in a shareholder’s gross income

if that amount does not exceed the shareholder’s adjusted basis in the S corporation’s stock. See also § 1368(b)(1). For

the portion of the distribution that does

not exceed the S corporation’s AAA, but

which exceeds the shareholder’s adjusted basis in the S corporation’s stock, that

amount is treated as gain from the sale

or exchange of property. See §§ 1368(c)

(1) and 1368(b)(2). After the application

of § 1368(c)(1), any remaining portion of

that distribution that exceeds the amount

of the S corporation’s AAA is treated as a

dividend (as defined in § 316) to the extent

of the S corporation’s remaining AE&P.

See § 1368(c)(2). Lastly, the portion of

the distribution remaining after the application of § 1368(c)(1) and (2) is governed

by § 1368(b) (that is, either not included in

gross income or treated as gain depending

on the shareholder’s basis in the S corporation’s stock). See § 1368(c)(3).

(8) Application of Aggregate Treatment to S Corporations with AE&P

The aggregate treatment provided in

the final regulations, as applied to S corporations with AE&P, does not result in

a positive adjustment of AAA because

the GILTI inclusion amount arises at the

shareholder level, rather than at the S corporation level. See § 1.951A-1(e). If an S

corporation with AE&P distributes proper-

606

ty to its shareholders, for example, to provide its shareholders with funds to pay the

resulting federal income tax arising from

their GILTI inclusion amount with respect

to stock of CFCs owned by the S corporation, the S corporation would need an

amount of AAA equal to the amount of

that distribution to prevent the distribution

from being included in such shareholders’

gross income to the extent of AE&P. See

generally § 1368(c). Although the S corporation could generate additional AAA

as needed through a distribution from a

CFC, comments have asserted that such

an approach could result in foreign withholding taxes or undesired reductions in

working capital that otherwise would be

devoted to the CFC’s businesses.

As stated in section 2.02(7) of this notice, § 1368(c)(1) provides that tax-free

distribution treatment to shareholders of

an S corporation with AE&P results only

to the extent the S corporation has sufficient AAA to support the distribution. In

the absence of enough AAA, § 1368(c)(2)

requires the distribution to be taxed as a

dividend (as defined in § 316) to the S corporation’s shareholders to the extent of the

S corporation’s AE&P. In other words, if

an S corporation has no AAA, the amount

of the adjusted basis in a shareholder’s S

corporation stock—including any positive

basis adjustment under § 961(a) resulting

from a shareholder’s GILTI inclusion—

does not affect dividend treatment. Once

the S corporation exhausts its AE&P, distributions are once again applied to shareholder stock basis. Comments regarding

the application of the final regulations to

S corporations and their shareholders focused on these interactions between the

aggregate treatment and the distribution

rules for AE&P under subchapter S.

(9) Notice 2019-46 – Domestic Partnerships and S Corporations Filing Under

Proposed GILTI Regulations

Following the June 21, 2019, publication of the final regulations, the Treasury

Department and the IRS became aware

that certain domestic partnerships and

S corporations had furnished Schedules

K-1 to their partners and shareholders

for the 2018 taxable year on or before the

publication date of the final regulations

and had relied on proposed §1.951A-5.

See section 2.04 of Notice 2019-46, 201937 I.R.B. 695 (Aug. 23, 2019). To reduce

Bulletin No. 2020–39

compliance and processing burdens resulting from the need to issue corrected

Schedules K-1 consistent with the final

regulations, Notice 2019-46 announced

the intent of the Treasury Department and

the IRS to issue regulations that would

permit certain domestic partnerships or

S corporations to apply the 2018 proposed

regulations, including the hybrid approach

in proposed § 1.951A-5, in their entirety,

for taxable years that ended before June

22, 2019. See section 3 of Notice 2019-46.

.03 QBAI rules for FDII and GILTI

For purposes of applying § 951A, a

U.S. shareholder has to determine its “net

CFC tested income” and “net deemed tangible income return.” Net CFC tested income is generally defined as the excess (if

any) of the aggregate of the shareholder’s

pro rata share of the tested income of each

CFC with respect to which such shareholder is a U.S. shareholder for the taxable year of the shareholder over the aggregate of the shareholder’s pro rata share

of the tested loss of each such CFC. See

§ 951A(c) and § 1.951A-1(c)(2). The U.S.

shareholder’s GILTI inclusion amount is

then determined by reducing net CFC tested income by net deemed tangible income

return. See § 951A(b)(1). Section 951A(b)

(2) and § 1.951A-1(c)(3) define the term

“net deemed tangible income return” as

the excess of 10 percent of the aggregate

of such U.S. shareholder’s pro rata share

of the QBAI of each CFC with respect

to which the shareholder is a U.S. shareholder for the taxable year, over a certain

amount of interest expense.

Section 951A(d)(1) and § 1.951A-1(b)

define QBAI, with respect to any CFC for

any taxable year, as the quarterly average

of the aggregate adjusted bases in specified tangible property used in the CFC’s

trade or business and of a type for which a

depreciation deduction is allowable under

§ 167.

The definition of QBAI in § 951A(d)

also applies for purposes of determining

deemed tangible income return under

§ 250. See § 250(b)(2)(B) and § 1.250(b)2(b). Section 250 generally allows a domestic corporation a deduction equal to

37.5 percent (21.875 percent for taxable

years after 2025) of its FDII (as defined

in § 250(b)(1) and § 1.250(b)-1(b)). For

purposes of FDII, QBAI is used to determine the deemed tangible income return

of a corporation, which in turn reduces

the amount of foreign-derived intangible

income of a corporation. See § 250(b)(1)(2). Section 250(b)(2)(B) and § 1.250(b)2 incorporate the definition of QBAI in

§ 951A(d)(3), with some modifications.

(1) Adjusted Basis for Purposes of

QBAI

Section 951A(d)(3)1 requires a taxpayer to calculate QBAI by determining the

adjusted basis of property using the ADS

under § 168(g) “notwithstanding any provision of this title (or any other provision

of law) which is enacted after the date of

the enactment of [§ 951A].”

ADS depreciation under § 168(g) is

determined by using the straight-line

method (without regard to salvage value), the applicable convention determined

under § 168(d), and the applicable recovery period as determined under the table in § 168(g)(2)(C). On December 22,

2017, the date of enactment of the TCJA,

§ 168(g)(2)(C) provided that the recovery

period for purposes of ADS depreciation

for nonresidential real property, as defined

in § 168(e)(2)(B), was 40 years. Nonresidential real property is defined under

§ 168(e)(2)(B) as “section 1250 property”

(that is, any depreciable real property not

described in § 1245) that is not residential

rental property, as defined in § 168(e)(2)

(A), or property with a class life of less

than 27.5 years. Section 168(g)(2)(C)

(i) provided that the recovery period for

property not described in § 168(g)(2)(C)

(ii) or (iii) is the property’s class life. Class

life is generally determined under Rev.

Proc. 87-56, 1987-2 C.B. 674; however,

§ 168(g)(3) specifies class lives for certain

types of property for ADS purposes.

(2) Qualified Improvement Property

Effective for property placed in service after December 31, 2017, § 13204

of the TCJA amended § 168(e) by removing references to qualified leasehold

improvement property, qualified restaurant improvement property, and qualified

retail improvement property, and adding

a definition for QIP. Under § 168(e)(6),

as amended by the TCJA, QIP generally

is defined as certain improvements to an

interior portion of a building that is nonresidential real property if such improvements are placed in service after the date

the building was first placed in service.

See § 1.168(b)-1(a)(5)(i)(A) and (ii).

(3) QIP’s 20-year ADS Recovery Period

Section 2307(a) of the Coronavirus

Aid, Relief, and Economic Security Act,

P.L. 116-136, 134 Stat. 281 (March 27,

2020) (CARES Act), titled “Technical

Amendments Regarding Qualified Improvement Property” amended the TCJA

rules regarding the treatment of QIP under § 168(e) and (g) (technical amendment). Under the technical amendment,

§ 2307(a)(1)(A) of the CARES Act

amended § 168(e) by adding clause (vii)

to paragraph (3)(E), providing that QIP is

classified as 15-year property, § 2307(a)

(1)(B) of the CARES Act amended the

definition of QIP in § 168(e)(6) by providing that the improvement must be “made

by the taxpayer,” and § 2307(a)(2) of the

CARES Act amended the table in § 168(g)

(3)(B) to provide a class life of 20 years

for QIP for purposes of the ADS. Under

§ 2307(b) of the CARES Act, the technical amendment is effective as if its provisions had been included in § 13204 of

the TCJA and, therefore, applies to property placed in service after December 31,

2017. According to the Description of the

Tax Provisions of Public Law 116-136,

the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, prepared by

the Staff of the Joint Committee on Taxation and published on April 23, 2020

(JCX-12R-20), when Congress enacted

§ 13204(a)(4)(b)(i) of the TCJA to add the

definition of QIP in § 168(e)(6), it intended

for QIP to be classified as 15-year property under § 168(e)(3)(E), with a 15-year recovery period under the general depreciation system in § 168(a) and a 20-year ADS

recovery period but inadvertently omitted

such language from the statute. See JCX12R-20 at 69‑70. The conference report

under the TCJA also states that Congress

intended QIP to be classified as 15-year

property under the general depreciation

As enacted, § 951A(d) contains two paragraphs designated as paragraph (3). The § 951A(d)(3) of the Code discussed in this notice relates to the determination of the adjusted basis in property

for purposes of calculating QBAI.

Bulletin No. 2020–39

607

September 21, 2020

system and be assigned a 20-year ADS recovery period. See Conference Report to

Accompany H.R. 1, H.R. Rept. 115-466,

at 366-367, 115th Cong. 1st Sess. (Dec.

15, 2017).

SECTION 3. FORTHCOMING S

CORPORATION REGULATIONS

ADDRESSING QUALIFYING S

CORPORATIONS WITH AE&P

.01 Purpose and Scope

The Treasury Department and the IRS

intend to issue the forthcoming S corporation regulations under § 958 of the Code

to ease the transition of S corporations

with AE&P on September 1, 2020, from

the historic entity treatment and the hybrid

treatment under proposed §1.951A-5 (and

illustrated in § 1.951A-5(g)(5) (Example

5)) to the aggregate treatment required

under the final regulations (transition

rules). The forthcoming S corporation

regulations will ensure that distributions

of income already taxed to S corporation

shareholders will be tax-free, and AE&P

generated by a former C corporation will

be taxed as dividends when distributed.

The Treasury Department and the IRS

intend the transition rules to assist S corporations with AE&P and their shareholders

by allowing them to recognize the GILTI

inclusion amount at the entity level so it is

treated as an item of income, thereby increasing its AAA before allocation to the

shareholders. This increase in AAA will

allow S corporations to distribute property

to shareholders and avoid dividend treatment. To achieve this result, the Treasury

Department and the IRS expect to provide

rules and examples consistent with those

set forth in sections 3.02 and 3.03, respectively, of this notice. These transition rules

are expected to apply solely to S corporations with “transition AE&P,” as defined

in section 3.02(3) of this notice.

.02 Transition Rules

(1) Elective Entity Treatment

With respect to a taxable year, an S

corporation is subject to entity treatment

if (a) it (and its shareholders, if applicable)

makes an election described in section

3.02(2) of this notice, (b) it has elected S

corporation status before June 22, 2019,

a CFC on June 22, 2019, within the meaning of § 958(a) if entity treatment applied,2

(d) it has transition AE&P (as defined in

section 3.02(3) of this notice) on September 1, 2020, or on the first day of any subsequent taxable year, and (e) it maintains

records to support the determination of the

transition AE&P amount. Entity treatment

means that an S corporation that owns

stock of a CFC is treated as owning within the meaning of § 958(a) the CFC stock

for purposes of applying § 951A. Thus,

the S corporation determines its GILTI inclusion amount, and its shareholders take

into account their distributive share of

that GILTI inclusion amount. See section

2.02(1) of this notice.

(2) Time and Manner of Making an

Election.

With respect to the first taxable year

ending on or after September 1, 2020, an

S corporation may irrevocably elect to apply entity treatment on a timely filed (including extensions) original Form 1120-S,

U.S. Income Tax Return for an S Corporation. For taxable years of an S corporation ending before September 1, 2020,

and after June 21, 2019, the S corporation

and all of its shareholders may irrevocably

elect the entity treatment provided in section 3.02(1) of this notice on timely filed

(including extensions) original returns or

on amended returns filed by March 15,

2021, by attaching a statement thereto.

The election is made by attaching a

statement to the Federal tax return. The

election statement must identify the election being made, include the amount of

transition AE&P as described in section

3.02(3) of this notice, and, where applicable, be signed by a person authorized

to sign the return required to filed under

§ 6037. Form 1120-S, Schedules K-1

(Form 1120-S), and Form 8892, U.S.

Shareholder Calculation of Global Intangible Low-Taxed Income (GILTI), must

be prepared consistent with the S corporation’s election for shareholders to comply

with § 6037(c).

(3) Transition AE&P

For purposes of this notice, the term

“transition AE&P” means, with respect to

an S corporation and its shareholders, the

amount of AE&P of the S corporation calculated as of September 1, 2020, reduced

as described in section 3.02(5) of this

notice. Transition AE&P is not increased

as a result of transactions occurring (or

entity classification elections described

in § 301.7701-3 filed) after September 1,

2020.

(4) Transition AE&P Not Transferable

For purposes of this notice, transition

AE&P of an S corporation is not transferrable to another person under any provision of the Code (for example, under

§§ 312(h) or 381 by reason of § 1371(a)).

In other words, the transferee of the transition AE&P would receive AE&P not transition AE&P.

(5) Reduction Solely by Distributions

An S corporation with transition AE&P

is treated as having no transition AE&P if,

beginning after September 1, 2020, the S

corporation distributes in one or more distributions a cumulative amount of AE&P

equal to or greater than the amount of the

S corporation’s transition AE&P as of

September 1, 2020.

(6) Required Aggregate Treatment

Except as provided in Notice 2019-46,

aggregate treatment applies to an S corporation if the S corporation has not made

an election described in section 3.02(1) of

this notice to apply the transition rules. In

the case of an S corporation that has made

an election to apply entity treatment as

described in section 3.02(1) of this notice,

aggregate treatment applies beginning

with the S corporation’s first taxable year

for which the S corporation has no transition AE&P on the first day of that year,

and to each subsequent taxable year of the

S corporation. For purposes of this section

3.02(6), aggregate treatment means the

treatment of an S corporation provided

under § 1.951A-1(e).

.03 Examples

The following examples illustrate the

rules set forth in section 3.02 of this notice.

In other words, elective entity treatment is not available when, if entity treatment otherwise applied, an S corporation would only be considered to own stock of a CFC under § 958(b) or not

at all. For example, where an individual shareholder directly owns 100 percent of the stock of a CFC, and the shareholder owns 50 percent of the stock of an S corporation, that S corporation

would be considered under §§ 318(a)(3)(C) and 958(b) to own all of the stock of CFC, but none of the stock under § 958(a). Therefore, in such a case, elective entity treatment is not available

to the S corporation.

September 21, 2020

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Bulletin No. 2020–39

(1) Example 1 – S corporation with transition

AE&P—(a) Facts. Individual A and Individual B,

each U.S. citizens, respectively own 5% and 95%

of the single class of stock of SCX, an S corporation. SCX’s sole asset is 100% of the single class of

stock of FC, a CFC, which SCX has held since June

1, 2019. Neither Individual A or Individual B own

shares, directly or indirectly, in any other CFC. Individual A, Individual B, SCX, and FC all use the calendar year as their taxable year. On January 1, 2021,

SCX has transition AE&P of $100x and AAA of $0.

SCX elects to apply the transition rules under section

3.02(1) of this notice. During the 2021 taxable year,

FC has $200x of tested income (within the meaning

of § 1.951A-2(b)(1)) and $0 of QBAI (within the

meaning of § 1.951A-3(b)).

(b) Analysis—(i) S corporation-level. As an

S corporation with transition AE&P on the first

day of the taxable year (here, January 1, 2021),

SCX is treated as owning (within the meaning of

§ 958(a)) all the stock of FC for purposes applying

§ 951A. Accordingly, SCX, a U.S. shareholder of

FC, determines its GILTI inclusion amount under

§ 1.951A-1(c)(1) for its 2021 taxable year. SCX’s

pro rata share of FC’s tested income is $200x, and its

pro rata share of FC’s QBAI is $0. SCX’s net CFC

tested income (within the meaning of § 1.951A-1(c)

(2)) is $200x, and its net deemed tangible income return (within the meaning of § 1.951A-1(c)(3)) is $0.

As a result, SCX’s GILTI inclusion amount for 2021

is $200x. At the end of 2021, SCX increases its AAA

by $200x to reflect the GILTI inclusion amount.

Because SCX computes its income as an individual

under § 1363(b), it cannot take a § 250 deduction for

any GILTI inclusion amount. See § 1.250(a)-1(c)(1).

(ii) S corporation shareholder-level. Neither Individual A nor Individual B is treated as owning the

stock in FC within the meaning of § 958(a). Accordingly, Individual A and Individual B include in gross

income their pro rata shares of SCX’s GILTI inclusion amount as described in § 1366(a), which is $10x

($200x x 5%) for Individual A and $190x ($200x x

95%) for Individual B.

(2) Example 2 – Effect of distribution on transition AE&P—(a) Facts. The facts are the same as in

Example 1 of this section 3.03, except that, on December 31, 2021, SCX distributes $300x to its shareholders. In addition, FC has an additional $200x of

tested income (within the meaning of § 1.951A-2(b)

(1)) and $0 of QBAI (within the meaning of

§ 1.951A-3(b)) during the 2022 taxable year.

(b) Analysis—(i) Determination of transition

AE&P. Before taking into account the distribution on

December 31, 2021, the results for taxable year 2021

are the same as set forth in paragraphs (b)(i) and (b)

(ii) of Example 1 of this section 3.03. $200x, the portion of SCX’s $300x distribution that does not exceed AAA, is subject to § 1368(c)(1). The remaining

distribution of $100x is treated as a dividend under

§ 316 to the extent of SCX’s AE&P. As of January 1,

2022, SCX has $0 of transition AE&P under section

3.02(5) of this notice because the cumulative amount

of SCX’s distributions out of AE&P after September

1, 2020, equals or exceeds the amount of SCX’s transition AE&P as of September 1, 2020.

(ii) S corporation-level. Because SCX has no

transition AE&P as of January 1, 2022, aggregate

treatment applies to SCX for its taxable year 2022

Bulletin No. 2020–39

and for each subsequent taxable year. As a result, for

purposes of determining a GILTI inclusion amount

in its taxable year 2022, SCX is not treated as owning (within the meaning of § 958(a)) the FC stock;

instead, SCX is treated in the same manner as a

foreign partnership for purposes of determining the

FC stock owned by Individual A and Individual B

under § 958(a)(2). See § 1.951A-1(e)(1). Accordingly, SCX does not have a GILTI inclusion amount for

its 2022 taxable year (or for any subsequent taxable

year) and therefore will not increase its AAA as a result of its ownership of FC stock for its taxable year

2022 (or for any subsequent taxable year).

(iii) S corporation shareholder-level—(A) Individual A. For purposes of determining the GILTI

inclusion amount of Individual A for taxable year

2022, Individual A is treated as owning 5% of the FC

stock under § 958(a). Individual A is not, however, a

U.S. shareholder of FC because Individual A owns

(within the meaning of § 958(a) and (b)) less than

10% (that is, only 5%) of the FC stock. Accordingly,

Individual A does not have a GILTI inclusion amount

for taxable year 2022.

(B) Individual B. For purposes of determining the

GILTI inclusion amount of Individual B for taxable

year 2022, Individual B is treated as owning 95% of

the FC stock under § 958(a). In addition, Individual B is a U.S. shareholder of FC because Individual

B owns (within the meaning of § 958(a) and (b)) at

least 10% (that is, 95%) of the FC stock. Accordingly, Individual B’s pro rata share of FC’s tested

income is $190x ($200x x 0.95), and Individual B’s

pro rata share of FC’s QBAI is $0. Individual B’s

net CFC tested income is $190x, and Individual B’s

net deemed tangible income return is $0. As a result,

Individual B’s GILTI inclusion amount for taxable

year 2022 is $190x.

.04 PTEP Rules Addressing Transition

from Entity to Aggregate Treatment

The Treasury Department and the IRS

expect to amend the regulations under

§§ 959 and 961 concerning previously

taxed earnings and profits to provide rules

to address the transition of S corporations

from entity treatment to aggregate treatment.

SECTION 4. FORTHCOMING QIPQBAI REGULATIONS ADDRESSING

THE TREATMENT OF QIP FOR

PURPOSES OF FDII AND GILTI

The Treasury Department and the IRS

expect the forthcoming QIP-QBAI regulations under §§ 250 and 951A of the Code

to clarify that the technical amendment to

§ 168 enacted in § 2307(a) of the CARES

Act applies to determine the adjusted basis of property under § 951A(d)(3) as if it

had been enacted as part of § 13204 of the

TCJA. The Treasury Department and the

IRS have determined that this clarification

is consistent with congressional intent that

609

the provisions of the technical amendment

be given effect as if included in § 13204

of the TCJA.

SECTION 5. APPLICABILITY DATES

The forthcoming S corporation regulations will provide that the transition rules

and examples set forth in sections 3.02

and 3.03 of this notice may be applied

to taxable years of S corporations ending on or after June 22, 2019. For rules

applicable to taxable years ending before

June 22, 2019, see Notice 2019-46. Until

the date of issuance of the forthcoming S

corporation regulations, an S corporation

and its shareholders may rely on the rules

set forth in sections 3.02 and 3.03 of this

notice provided that the S corporation and

its shareholders that are U.S. shareholders

of the CFC consistently apply the rules set

forth in sections 3.02 and 3.03 of this notice with respect to all CFCs whose stock

the S corporation owns within the meaning of § 958(a) of the Code.

Consistent with § 2307(b) of the

CARES Act, the forthcoming QIP-QBAI

regulations will provide that the rules

described in section 4 of this notice will

apply retroactively. In the case of the

regulations under § 951A, the forthcoming QIP-QBAI regulations will apply to

taxable years of foreign corporations beginning after December 31, 2017, and to

taxable years of United States shareholders in which or with which such taxable

years of foreign corporations end. In the

case of the regulations under § 250, the

forthcoming QIP-QBAI regulations will

apply to taxable years of U.S. persons

beginning after December 31, 2017. See

§ 7805(b)(2). Before the issuance of the

forthcoming QIP-QBAI regulations, U.S.

shareholders and domestic corporations

(including any individuals that elect to apply § 962) may rely on the rules described

in section 4 of this notice for a taxable

year beginning after December 31, 2017,

provided they consistently apply those

rules for purposes of FDII and GILTI under §§ 250 and 951A to such taxable year

and all subsequent taxable years.

Pursuant to Section IV. of the Policy

Statement on the Tax Regulatory Process

issued by the Treasury Department and

the IRS on March 5, 2019, if no proposed

regulations or other guidance is released

September 21, 2020

within 18 months after September 21,

2020, taxpayers may continue to rely on

the rules described in this notice but, until

additional guidance is issued, the Treasury

Department and the IRS will not assert a

position adverse to the taxpayer based in

whole or in part on this notice.

SECTION 6. REQUEST FOR

COMMENTS

The Treasury Department and the IRS

request comments regarding the impact

of the forthcoming regulations set forth

in sections 3 and 4 of this notice on small

entities, within the meaning of § 601(6) of

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

chapter 6).

In addition, the Treasury Department

and the IRS request comments addressing

the intended transition rules of the forthcoming S corporation regulations set forth

in section 3 of this notice.

The Treasury Department and the IRS

also request comments on the rules of

the forthcoming QIP-QBAI regulations

described in section 4 of this notice. The

Treasury Department and the IRS request

comments on whether an alternative rule

should be provided that would allow a

corrective adjustment in the first taxable

year ending after the rules in section 4 of

this notice become final for taxpayers that

took a position that is inconsistent with

the rules described in section 4 of this notice on a return filed before September 1,

2020, and do not file an amended return

for such year. Comments on this issue

should address what limitations might be

needed on any such alternative rule, such

as in cases where there have been changes

in ownership of a CFC.

Comments should be submitted by

November 2, 2020. Commenters are

strongly encouraged to submit public

September 21, 2020

comments electronically via the Federal

eRulemaking Portal at www.regulations.

gov (indicate IRS and Notice 2020-69) by

following the online instructions for submitting comments. Once submitted to the

Federal eRulemaking Portal, comments

cannot be edited or withdrawn. The IRS

expects to have limited personnel available to process public comments that are

submitted on paper through mail. Until

further notice, any comments submitted

on paper will be considered to the extent

practicable. The Treasury Department

and the IRS will publish for public availability any comment submitted electronically, and to the extent practicable any

comment submitted on paper, to its public docket. Send paper submissions to:

CC:PA:LPD:PR (Notice 2020-69), room

5203, Internal Revenue Service, PO Box

7604, Ben Franklin Station, Washington,

DC 20044.

SECTION 7. PAPERWORK

REDUCTION ACT

The collections of information in section 3.02(2) of this notice are reflected in

the submission to the Office of Management and Budget (OMB) for review in

accordance with Paperwork Reduction

Act (44 U.S.C. § 3507(c)) (PRA) that is

associated with OMB control number

1545-2291. The collections of information in section 3.02(2) of this notice will

be submitted to IRS in in conjunction with

Form 1120S, which is approved under

OMB control number 1545-0123. These

submissions will be updated in the ordinary course.

An agency may not conduct or sponsor,

and a person is not required to respond

to, a collection of information unless the

collection of information displays a valid

OMB control number.

610

The collections of information are

required to notify the IRS both that an

S corporation has elected to apply entity treatment described in section 3.02 of

this notice and of the amount of transition AE&P described in section 3.02(3)

of this notice. The collections of information are required in order for the transition rules described in section 3.02 of

this notice to apply. The likely respondents are business or other for-profit institutions.

The estimated total reporting and/or recordkeeping burden of this Notice is 1,844

hours. The estimated burden per respondent/recordkeeper is half an hour. The

estimated number of respondents and/or

recordkeepers is 3,688.

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

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

revenue law. Generally, tax returns and tax

return information are confidential, as required by § 6103.

SECTION 8. DRAFTING AND

CONTACT INFORMATION

The principal authors of this notice are

Jennifer N. Keeney of the Office of Associate Chief Counsel (Passthroughs &

Special Industries) and Edward J. Tracy,

Jorge M. Oben, and Larry R. Pounders

of the Office of Associate Chief Counsel

(International). For further information

regarding the S corporation issues described in this notice, contact Ms. Keeney at (202) 317-6850 or Mr. Tracy at

(202) 317-6934 (not toll-free numbers).

For further information regarding the

QIP-QBAI issues described in this notice, contact Jorge M. Oben or Larry R.

Pounders at (202) 317-6934 (not a tollfree number).

Bulletin No. 2020–39

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. 2020–39

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.

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.

September 21, 2020

Numerical Finding List1

Bulletin 2020–39

Announcements:

2020-8, 2020-32 I.R.B. 244

2020-9, 2020-32 I.R.B. 244

2020-10, 2020-33 I.R.B. 385

2020-11, 2020-33 I.R.B. 385

2020-13, 2020-35 I.R.B. 492

2020-14, 2020-36 I.R.B. 549

2020-15, 2020-38 I.R.B. 577

2020-16, 2020-38 I.R.B. 578

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

2020-56, 2020-32 I.R.B. 239

2020-57, 2020-32 I.R.B. 240

2020-58, 2020-34 I.R.B. 419

2020-55, 2020-35 I.R.B. 467

2020-61, 2020-35 I.R.B. 468

2020-62, 2020-35 I.R.B. 476

2020-63, 2020-35 I.R.B. 491

2020-60, 2020-36 I.R.B. 514

2020-64, 2020-36 I.R.B. 519

2020-65, 2020-38 I.R.B. 567

2020-68, 2020-38 I.R.B. 567

2020-69, 2020-39 I.R.B. 604

Revenue Procedures:—Continued

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

2020-36, 2020-32 I.R.B. 243

2020-37, 2020-33 I.R.B. 381

2020-38, 2020-36 I.R.B. 522

2020-39, 2020-36 I.R.B. 546

2020-40, 2020-38 I.R.B. 575

Revenue Rulings:

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

2020-15, 2020-32 I.R.B. 233

2020-16, 2020-37 I.R.B. 550

2020-17, 2020-37 I.R.B. 552

2020-18, 2020-39 I.R.B. 584

Treasury Decisions:

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

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

9903, 2020-32 I.R.B. 235

9901, 2020-33 I.R.B. 266

9902, 2020-33 I.R.B. 349

9904, 2020-34 I.R.B. 413

9907, 2020-38 I.R.B. 559

9906, 2020-39 I.R.B. 579

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

REG-130081-19, 2020-32 I.R.B. 246

REG-127732-19, 2020-33 I.R.B. 385

REG-111879-20, 2020-34 I.R.B. 421

REG-112042-19, 2020-34 I.R.B. 422

REG-132766-18, 2020-34 I.R.B. 436

REG-132434-17, 2020-35 I.R.B. 508

REG-116475-19, 2020-37 I.R.B. 553

Revenue Procedures:

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

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

A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2019–27 through 2019–52 is in Internal Revenue Bulletin

2019–52, dated December 27, 2019.

September 21, 2020

Bulletin No. 2020–39

Finding List of Current Actions on

Previously Published Items1

Bulletin 2020–39

A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2019–27 through 2019–52 is in Internal Revenue Bulletin

2019–52, dated December 27, 2019.

Bulletin No. 2020–39

iii

September 21, 2020

Internal Revenue Service

Washington, DC 20224

Official Business

Penalty for Private Use, $300

INTERNAL REVENUE BULLETIN

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