Internal Revenue Bulletin 2020-30 (PDF rendition): IRS Notices

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Bulletin No. 2020–30
July 20, 2020
HIGHLIGHTS
OF THIS ISSUE
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.
INCOME TAX
Notice 2020-53, page 151.
In response to the ongoing Coronavirus Disease 2019
(COVID–19) pandemic, this notice provides temporary relief
from certain requirements under § 42 of the Internal Revenue
Code (Code) for qualified low-income housing projects and
under §§ 142(d) and 147(d) of the Code for qualified residen-
tial rental projects.
REG-112339-19, page 155.
This document contains proposed regulations regarding the
credit for carbon oxide sequestration under section 45Q of
the Internal Revenue Code (Code). These proposed regula-
tions will affect persons who physically or contractually en-
sure the capture and disposal of qualified carbon oxide, use
of qualified carbon oxide as a tertiary injectant in a qualified
enhanced oil or natural gas recovery project, or utilization
of qualified carbon oxide in a manner that qualifies for the
credit.
REG-117589-18, page 184.
These proposed regulations provide rules under section
1031 of the Internal Revenue Code relating to the non-rec-
ognition of gain or loss on exchanges of certain prop erty for
other property of like kind. The proposed regulations amend
the existing regulations under section 1031 to add a defi-
nition of real property to reflect statutory changes limiting
section 1031 to exchanges of real property. The proposed
regulations also provide a rule addressing a taxpayer’s re-
ceipt of personal property that is incidental to real property
the taxpayer receives in the exchange.
REG-125716-18, page 197.
This document contains proposed regulations under section
1502 of the Internal Revenue Code (the Code). The proposed
regulations would update existing regulations under section
1.1502-21 to reflect statutory changes made to section 172
of the Code by the Tax Cuts and Jobs Act, P.L. 115-97 (Dec.
22, 2017) and the Coronavirus Aid, Relief, and Economic Se-
curity Act, P.L. 116-36 (Mar. 27, 2020). The proposed regu-
lations would affect taxpayers that file consolidated returns.
T.D. 9900, page 143.
Section 2303 of the “Coronavirus Aid, Relief, and Economic
Security Act,” Pub. L. No. 116-136, 134 Stat. 281 (March
27, 2020) (the “CARES Act”), amended the carryback pro-
visions related to net operating losses. As a result of the
CARES Act amendments, which specifically extended the
carryback period for certain net operating losses, these
temporary regulations permit certain acquiring consolidated
groups to elect to waive all or a portion of the pre-acquisition
portion of the extended carryback period under section 172
for certain losses attributable to certain acquired members.
Finding Lists begin on page ii.

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Introduction
The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing of-
ficial 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 sub-
stantive 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 other-
wise indicated. Procedures relating solely to matters of inter-
nal 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 rul-
ings to taxpayers or technical advice to Service field offices,
identifying details and information of a confidential nature are
deleted to prevent unwarranted invasions of privacy and to
comply with statutory requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions
of the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B,
Legislation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative
Rulings. Bank Secrecy Act Administrative Rulings are issued
by the Department of the Treasury’s Office of the Assistant
Secretary (Enforcement).
Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbar-
ment and suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
July 20, 2020 Bulletin No. 2020–30

Part I
26 CFR 1.1502-21T: Carryback of Consolidated Net
Operating Losses
T.D. 9900
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
Carryback of Consolidated
Net Operating Losses
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Temporary regulations.
SUMMARY: This document contains
temporary regulations under section 1502
of the Internal Revenue Code (Code) that
affect corporations filing consolidated re-
turns. These regulations permit consoli-
dated groups that acquire new members
that were members of another consoli-
dated group to elect in a year subsequent
to the year of acquisition to waive all or
part of the pre-acquisition portion of an
extended carryback period under section
172 of the Code for certain losses attrib-
utable to the acquired members where
there is a retroactive statutory exten-
sion of the NOL carryback period under
section 172. These regulations respond
to the enactment of section 2303 of the
CARES Act, which retroactively extends
the carryback period under section 172
for taxable years beginning after 2017
and before 2021.
DATES: Effective date: These temporary
regulations are effective on July 2, 2020.
Applicability date: For the date of applica-
bility, see §1.1502-21T(h)(9).
FOR FURTHER INFORMATION CON-
TACT: Jonathan R. Neuville, at (202)
317-5363 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
The text of these temporary regulations
also serves as the text of part of the pro-
posed regulations set forth in the related
notice of proposed rulemaking on this
subject (REG-125716-18) in the Proposed
Rules section in this issue of the Federal
Register.
Background
This Treasury decision amends the
Income Tax Regulations (26 CFR part
1) under section 1502 of the Code. Sec-
tion 1502 authorizes the Secretary of
the Treasury or his delegate (Secretary)
to prescribe regulations for an affiliated
group of corporations that join in filing
(or that are required to join in filing) a
consolidated return (consolidated group)
to reflect clearly the Federal income tax
liability of the consolidated group and
to prevent avoidance of such tax liabil-
ity. See §1.1502-1(h) (defining the term
“consolidated group”). For purposes of
carrying out those objectives, section
1502 also permits the Secretary to pre-
scribe rules that may be different from
the provisions of chapter 1 of the Code
that would apply if the corporations
composing the consolidated group filed
separate returns. Terms used in the con-
solidated return regulations generally are
defined in §1.1502-1.
The Department of the Treasury (Trea-
sury Department) and the IRS are issuing
these temporary regulations to provide
guidance to consolidated groups regard-
ing the application of the net operating
loss (NOL) carryback rules under section
172(b) of the Code, as amended by (i)
section 2303(b) of the Coronavirus Aid,
Relief, and Economic Security Act, Public
Law 116-136, 134 Stat. 281 (March 27,
2020) (CARES Act), and (ii) any future
statutory amendments to section 172. Spe-
cifically, if there is a retroactive statutory
extension of the NOL carryback period
under section 172, these temporary reg-
ulations permit consolidated groups that
acquired new members that were mem-
bers of another consolidated group prior
to the statutory change to elect to waive,
in a taxable year subsequent to the tax-
able year of the acquisition, all or part of
the pre-acquisition portion of an extend-
ed carryback period (as defined in part I
of the Explanation of Provisions) under
section 172 for consolidated net operat-
ing losses (CNOLs) attributable to the ac-
quired members.
I. NOL Carrybacks and Carryovers under
Section 172
For purposes of section 172, an NOL
equals the excess of a taxpayer’s deduc-
tions allowed by chapter 1 of the Code
over the taxpayer’s gross income, com-
puted with the modifications specified
in section 172(d). Section 172(c). For a
taxable year beginning before January 1,
2021, section 172(a)(1) allows as a de-
duction an amount equal to the aggregate
of the NOL carryovers and carrybacks
to such year. As amended by section
2303(b)(2) of the CARES Act, section
172(b)(1)(A)(i) of the Code provides that
an NOL for any taxable year must be an
NOL carryback to the extent provided
in section 172(b)(1)(B), 172(b)(1)(C)(i),
and 172(b)(1)(D).
A. Tax Cuts and Jobs Act amendments to
section 172
Prior to enactment of the CARES Act,
section 172 was most recently amended
by Public Law 115-97, 131 Stat. 2054
(December 22, 2017), commonly referred
to as the Tax Cuts and Jobs Act (TCJA).
In relevant part, section 13302(b) of the
TCJA amended section 172(b) to gen-
erally prohibit the carryback of NOLs
arising in taxable years beginning after
December 31, 2017 (post-2017 NOLs).
The TCJA also provided limited excep-
tions to the general carryback prohibition
by amending sections 172(b)(1)(B) and
172(b)(1)(C)(i) to provide that farming
losses (within the meaning of section
172(b)(1)(B)(ii)) and losses incurred
by insurance companies (as defined in
section 816(a) of the Code) other than
life insurance companies (nonlife insur-
ance companies), respectively, must be
carried back to each of the two taxable
years preceding the taxable year of the
loss. Therefore, prior to enactment of the
CARES Act, taxpayers generally could
not carry back post-2017 NOLs to prior
taxable years.
Bulletin No. 2020–30 143 July 20, 2020

B. CARES Act amendments to section
172
Section 2303(b) of the CARES Act
added section 172(b)(1)(D) to the Code.
This provision contains an additional ex-
ception to the general prohibition of NOL
carrybacks. Specifically, section 172(b)
(1)(D) provides that an NOL arising in a
taxable year beginning after December
31, 2017, and before January 1, 2021,
must be carried back to each of the five
taxable years preceding the taxable year
in which that NOL arises (five-year car-
ryback period). Section 172(b)(2) requires
taxpayers to carry the entire amount of
such NOL back to the earliest taxable year
of that five-year carryback period. Section
172(b)(2) also provides that the portion of
the NOL that must be carried to each suc-
cessive taxable year in the five-year car-
ryback period equals the amount, if any,
that was not used in the preceding taxable
years to which the NOL was carried.
Section 172(b)(1)(D)(i)(II), as added
by section 2303(b)(1) of the CARES Act,
further provides that the exceptions to the
prohibition of NOL carrybacks regarding
farming losses and nonlife insurance com-
panies do not apply to NOLs that are sub-
ject to the five-year carryback period. See
sections 172(b)(1)(B)(i) (regarding farm-
ing losses) and 172(b)(1)(C)(i) (regarding
nonlife insurance companies). Therefore,
farming losses and losses incurred by
nonlife insurance companies arising in a
taxable year beginning after December 31,
2017, and before January 1, 2021, are car-
ried back five years instead of two years.
Section 172(b)(1)(D)(i)(II).
C. Election to waive carryback under
section 172(b)(3)
Section 172(b)(3) permits a taxpayer
entitled to a carryback period under sec-
tion 172(b)(1) to make, with respect to an
NOL for any taxable year, an irrevocable
election to relinquish the carryback peri-
od. A taxpayer generally must make this
election (i) in such manner as may be pre-
scribed by the Secretary, and (ii) by the
due date (including extensions of time) for
filing the taxpayer’s return for the taxable
year of the NOL for which the election is
to be in effect. However, solely with re-
gard to NOLs arising in a taxable year be-
ginning in 2018 or 2019, section 172(b)(1)
(D)(v)(II), as added by section 2303(b)(1)
of the CARES Act, provides a special rule
that requires elections to waive the carry-
back period for such NOLs under section
172(b)(3) to be made no later than the due
date (including extensions of time) for fil-
ing the taxpayer’s Federal income tax re-
turn for the first taxable year ending after
March 27, 2020. See also Rev. Proc. 2020-
24, 2020-18 I.R.B. 750, §§4.01(1), 4.03
(providing procedures regarding the time
and manner of filing elections for consol-
idated groups to waive the carryback un-
der section 172(b)(3) for NOLs arising in
taxable years beginning in 2018 or 2019).
II. Consolidated Return Regulations
Section 1.1502-21(a) defines the con-
solidated net operating loss (that is, a
CNOL) deduction for any consolidated
return year as “the aggregate of the net
operating loss carryovers and carrybacks
to the year,” which consist of (i) CNOLs
of the consolidated group, and (ii) any
NOLs of the group’s members arising in
separate return years. A “CNOL” is, for a
consolidated return year, the excess of a
consolidated group’s deductions over the
group’s gross income, as determined un-
der §1.1502-11(a) (without regard to any
CNOL deduction). See §1.1502-21(e).
A. General rules regarding NOL
carryovers and carrybacks
The NOL carryovers and carrybacks to
a taxable year are determined under the
principles of section 172 and §1.1502-
21. Section 1.1502-21(b)(1). Thus, losses
permitted to be absorbed in a consolidat-
ed return year generally are absorbed in
the order of the taxable years in which
they arose, and losses carried from tax-
able years ending on the same date, and
which are available to offset consolidated
taxable income for the year, generally are
absorbed on a pro rata basis. Id. If any
percentage of the CNOL that is attribut-
able to a member (determined pursuant to
§1.1502-21(b)(2)(iv)(B)) may be carried
to a separate return year of the member,
the amount of the CNOL that is attribut-
able to the member is apportioned to the
member and carried to the separate return
year. Section 1.1502-21(b)(2)(i). If carried
back to a separate return year, the appor-
tioned loss may not be carried back to an
equivalent, or earlier, consolidated return
year of the group. Id.
B. General waiver election to relinquish
entire carryback
Section 1.1502-21(b)(3)(i) permits a
consolidated group to make an irrevocable
election under section 172(b)(3) to relin-
quish the entire carryback period with re-
spect to a CNOL for any consolidated re-
turn year (general waiver election). When
making this general waiver election for a
consolidated return year, a consolidated
group cannot make this election separately
for a particular member (whether or not it
remains a member). Section 1.1502-21(b)
(3)(i). Rather, the consolidated return reg-
ulations provide only a narrowly scoped
“split-waiver election” (as described in
detail in part II.C of this Background)
that a consolidated group can make sole-
ly with respect to one or more members
that previously were members of another
group. Id. A general waiver election must
be made in a separate statement filed with
the group’s Federal income tax return for
the consolidated return year in which the
NOL arises. Id.
C. Special election for acquisitions of
members that were members of another
consolidated group
A consolidated group (acquiring group)
that acquires a new member (acquired
member) that was a member of another
consolidated group (former group) may
make an irrevocable election to relinquish,
with respect to all CNOLs of the acquiring
group that are attributable to the acquired
member, the portion of the carryback pe-
riod for which the acquired member was
a member of a former group (split-waiver
election). See §1.1502-21(b)(3)(ii)(B). If
an acquiring group makes a split-waiver
election for a consolidated return year, the
portion of the acquiring group’s CNOL
attributable to the acquired member for
which the election is made will not be
carried back to a former group. Id. Unlike
a general waiver election, a split-waiver
election is not a yearly election, but rath-
er applies to all CNOLs attributable to an
acquired member that otherwise would be
July 20, 2020 144 Bulletin No. 2020–30

Bulletin No. 2020–30 145 July 20, 2020
carried back to a taxable year of a former
group under section 172. Id.
Eligibility for a split-waiver election
is subject to certain conditions and pro-
cedures. Importantly, a split-waiver elec-
tion must be made in a separate statement
filed with the acquiring group’s original
Federal income tax return for the year the
corporation became a member. Id. In oth-
er words, if a split-waiver election is not
made with this particular Federal income
tax return, the election cannot later be
made by amending this return in a sub-
sequent consolidated return year or by
attaching the above-described statement
to a Federal income tax return for a lat-
er consolidated return year. If any other
corporation joining the acquiring group
was affiliated with the acquired member
immediately before the acquired mem-
ber joined the acquiring group, that other
corporation also must be included in the
split-waiver election. Id.
Explanation of Provisions
I. In General
On prior occasions, enacted legislation
has amended section 172 to extend the
carryback period for NOLs. See Worker,
Homeownership, and Business Assistance
Act of 2009, Public Law 111-92, 123 Stat.
2984 (November 6, 2009); Job Creation
and Worker Assistance Act of 2002, Pub-
lic Law 107-147, 116 Stat. 21 (March 9,
2002). Most recently, section 2303(b) of
the CARES Act added section 172(b)(1)
(D) to the Code. As described in part I of
the Background, section 172(b)(1)(D) re-
quires (in the absence of a waiver under
section 172(b)(3)) a five-year carryback
period for an NOL that arises in a taxable
year beginning after December 31, 2017,
and before January 1, 2021.
Such statutory changes to NOL carry-
back periods uniquely impact consolidat-
ed groups that acquire one or more corpo-
rations prior to the statutory extension of
the carryback period. During the past two
decades, the Treasury Department and the
IRS have provided consolidated groups
with certain additional elections for waiv-
ing carrybacks of losses into other, former
groups. See 75 FR 35643 (June 23, 2010)
(2010 split-waiver regulations); 67 FR
38000 (May 31, 2002) (2002 split-waiver
regulations). These additional elections,
while responsive to particular statuto-
ry amendments, have reflected common
policy objectives of providing affected
groups with the ability to waive all or a
portion of the statutorily extended NOL
carryback period.
The Treasury Department and the IRS
have determined that it is appropriate
to provide similar rules with regard to
amendments to the NOL carryback rules
under section 2303(b) of the CARES Act,
as well as any similar statutory changes
in the future. (For purposes of these reg-
ulations, the amended NOL carryback
rules implemented by the CARES Act in
particular or by future legislation more
generally are referred to as the “amend-
ed carryback rules.”) Therefore, these
temporary regulations provide princi-
ple-based rules applicable to CNOLs
arising in taxable years to which amend-
ed carryback rules become applicable
after the acquisition of a member. Under
these rules, which are consistent with the
2002 and 2010 split-waiver regulations
(although these rules are not limited to
a one-time statutory change of the NOL
carryback rules), acquiring groups would
possess the opportunity to waive, on a
taxable-year-by-taxable-year basis, all
or a portion of the carryback period with
regard to CNOLs attributable to acquired
members for pre-acquisition years during
which the acquired members were mem-
bers of a former group.
Therefore, these temporary regulations
provide two additional types of split-waiv-
er elections for consolidated groups that
(i) include one or more acquired members,
and (ii) have CNOLs that, under amended
carryback rules, become eligible to be car-
ried back for a greater number of years than
under statutory law in effect at the time of
the acquisition (default carryback period).
See the discussion in parts II through IV
of this Explanation of Provisions. A de-
fault carryback period may consist of zero
years in the case of a complete prohibition
on carrybacks. The additional years added
under amended carryback rules constitute
the “extended carryback period.” The two
additional types of split-waiver elections
set forth in these temporary regulations
provide relief, and are subject to condi-
tions and procedures, consistent with the
applicable split-waiver elections set forth
in the 2002 and 2010 split-waiver regula-
tions.
II. Amended Statute Split-Waiver Election
These temporary regulations permit
an acquiring group to make a special
split-waiver election with regard to a
CNOL for a consolidated return year in
which an acquired member was includ-
ed in the acquiring group and to which
amended carryback rules apply (amend-
ed statute split-waiver election). Through
this election, an acquiring group can
relinquish that part of the extended car-
ryback period during which an acquired
member was a member of a former group
(for the portion of a CNOL attributable to
the acquired member), notwithstanding
that the group did not file a split-waiv-
er election for the year in which the ac-
quired member became a member of the
acquiring group (as required by §1.1502-
21(b)(3)(ii)(B)). Accordingly, an amend-
ed statute split-waiver election applies
only to the portion of a CNOL that is at-
tributable to an acquired member for the
portion of the carryback period (includ-
ing the default carryback period and the
extended carryback period) during which
the acquired member was a member of a
former group.
An acquiring group makes an amend-
ed statute split-waiver election on a
year-by-year basis, consistent with the
2002 and 2010 split-waiver regulations.
Consequently, an acquiring group may
make this election for the portion of a
CNOL attributable to an acquired mem-
ber that arises in any particular taxable
year to which an amended carryback rule
applies (amended carryback CNOL), re-
gardless of whether the acquiring group
makes such an election for CNOLs aris-
ing in other consolidated return years.
However, also consistent with the 2002
and 2010 split-waiver regulations, an
acquiring group can make an amended
statute split-waiver election with respect
to an amended carryback CNOL only if
any carryback to a taxable year included
in the extended carryback period is not
claimed on a return or other filing by a
former group that is filed on or before the
date this election is filed by the acquiring
group. Also consistent with the 2002 and
2010 split-waiver regulations, an acquir-

July 20, 2020 146 Bulletin No. 2020–30
ing group can make an amended statute
split-waiver election with respect to an
acquired member only if the acquiring
group did not file (i) a valid split-waiv-
er election with respect to that acquired
member on or before the effective date of
the relevant amended carryback rules, or
(ii) a general waiver election with respect
to a CNOL of the acquiring group from
which the amended carryback CNOL is
attributed to the acquired member.
The amended statute split-waiver elec-
tion generally must be made by attaching
a statement to the acquiring group’s time-
ly filed tax return (including extensions)
with regard to the consolidated return
year during which the amended carryback
CNOL was incurred. In certain circum-
stances, the statement may be attached to
an amended return, but that return must be
filed no later than 150 days after the effec-
tive date of the relevant amended carry-
back rules. These regulations also include
rules specific to the amendments to sec-
tion 172 made by section 2303(b) of the
CARES Act, which provide an addition-
al option under which the statement may
be attached to an amended return filed
no later than November 30, 2020 (a date
that is 150 days after the date of filing of
these temporary regulations). These filing
requirements incorporate the principles
of the filing requirements set forth in the
2002 and 2010 split-waiver regulations,
which were tailored to specific enacted
legislation.
III. Extended Split-Waiver Election
To provide acquiring groups with ad-
ditional flexibility for making split-waiv-
er elections, these temporary regulations
provide a second, alternative split-waiv-
er election (extended split-waiver elec-
tion) that applies solely to the extended
carryback period (that is, the additional
carryback years provided under amend-
ed carryback rules). Through an extend-
ed split-waiver election, an acquiring
group can ensure that amended carryback
CNOLs are carried back to taxable years
of former groups only to the extent those
losses would have been carried back un-
der prior law (that is, the default carryback
period). In other words, this election af-
fects only the extended carryback period
for an acquired member’s attributed loss.
The extended split-waiver election
and the amended statute split-waiver
election are subject to the same condi-
tions and procedures, and provide the
same relief, except that the extended
split-waiver election waives only the ex-
tended carryback period. Therefore, any
CNOL carryback to default carryback
years would be unaffected by an extend-
ed split-waiver election. For example, if
the default carryback period were two
years and a change in law extended the
carryback period to five years, an ac-
quiring group could make an extended
split-waiver election to waive the carry-
back to a former group of only the three
additional carryback years with respect
to the amended carryback CNOL. Ac-
cordingly, the extended split-waiver elec-
tion is available if losses attributable to
the acquired member have been carried
back solely to taxable years of a former
group in the default carryback period, but
not in the extended carryback period.
IV. Applicability Date
These temporary regulations apply
to any CNOLs arising in a taxable year
ending after July 2, 2020. However, con-
sistent with the applicability date for the
amendments to section 172(b) pursuant to
section 2303(b) of the CARES Act, and
pursuant to section 7805(b)(2), taxpayers
may apply these temporary regulations to
any CNOLs arising in a taxable year be-
ginning after December 31, 2017. The ap-
plicability of these temporary regulations
will expire on June 30, 2023.
V. Good Cause
The Treasury Department and the IRS
are issuing these temporary regulations
without prior notice and the opportunity
for public comment pursuant to section
553(b)(B) of the Administrative Proce-
dure Act (APA), which provides that ad-
vance notice and the opportunity for pub-
lic comment are not required with respect
to a rulemaking when an agency “for good
cause finds (and incorporates the finding
and a brief statement of reasons therefor
in the rules issued) that notice and pub-
lic procedure thereon are impracticable,
unnecessary, or contrary to the public in-
terest.” Under the “public interest” prong
of 5 U.S.C. 553(b)(B), the good cause
exception appropriately applies where
notice and comment would harm, defeat,
or frustrate the public interest, rather than
serving it.
These temporary regulations, which
solely provide certain acquiring groups
with elective relief, are necessary to per-
mit certain acquiring groups to elect to
waive all or a portion of the carryback
period for certain losses attributable to ac-
quired members for pre-acquisition years
during which the acquired members were
members of a former group. The amended
carryback rules enacted by section 2303(b)
of the CARES Act apply for NOLs arising
in a taxable year beginning after Decem-
ber 31, 2017, and before January 1, 2021.
Consequently, good cause arises from the
fact that these temporary regulations will
affect taxable years of certain acquiring
groups for which tax returns already are
due or may become due during a period
of comment and delayed effectiveness.
Deferring the effectiveness of the tempo-
rary regulations until after such a period
could prevent taxpayers from immediate-
ly electing to obtain the intended benefits
of section 2303(b) of the CARES Act and
increase taxpayer compliance costs and
uncertainty because of delay of the time
before which relevant acquiring groups
could make the elections permitted by the
regulations with certainty.
Special Analyses
I. Regulatory Planning and Review
Executive Orders 13771, 13563, and
12866 direct agencies to assess costs and
benefits of available regulatory alterna-
tives and, if regulation is necessary, to
select regulatory approaches that max-
imize net benefits (including potential
economic, environmental, public health
and safety effects, distributive impacts,
and equity). Executive Order 13563 em-
phasizes the importance of quantifying
both costs and benefits, reducing costs,
harmonizing rules, and promoting flex-
ibility.
These regulations are not subject to re-
view under section 6(b) of Executive Or-
der 12866 pursuant to the Memorandum
of Agreement (April 11, 2018) between
the Treasury Department and the Office

Bulletin No. 2020–30 147 July 20, 2020
of Management and Budget regarding re-
view of tax regulations.
II. Paperwork Reduction Act
The collections of information in these
temporary regulations are in §1.1502-
21T(b)(3)(ii)(C)(5)(i) and §1.1502-21T(b)
(3)(ii)(C)(5)(ii). The information is re-
quired to inform the IRS on whether, and
to what extent, an acquiring group makes
either of the elections described in these
temporary regulations.
The collection of information provided
by these temporary regulations has been
approved by the Office of Management
and Budget (OMB) under control number
1545-0123. For purposes of the Paper-
work Reduction Act, 44 U.S.C. 3501 et
seq. (PRA), the reporting burden asso-
ciated with the collection of information
in Form 1120 (U.S. Corporation Income
Tax Return) will be reflected in the PRA
Submission associated with OMB control
number 1545-0123.
In general, if the acquiring group
makes an election under §1.1502-21T(b)
(3)(ii)(C), the acquiring group is required
to attach a separate statement to its Form
1120 as provided in §1.1502-21T(b)(3)(ii)
(C)(5)(i) and §1.1502-21T(b)(3)(ii)(C)(5)
(ii), respectively. This statement must be
filed as provided in §1.1502-21T(b)(3)(ii)
(C)(6).
The following table displays the num-
ber of respondents estimated to be re-
quired to report on Form 1120 with re-
spect to the collections of information
required by these temporary regulations.
Due to the absence of historical tax data,
direct estimates of the number of respon-
dents required to attach a statement to oth-
er types of tax returns, as applicable, are
not available.
Number of Respondents (Estimated)
Amended Statute Split-Waiver Election & Extended Split-Waiver Election
Form 112017,500
Source: RAAS:CDW
The numbers of respondents in the table

were estimated by the Research, Applied
Analytics and Statistics Division (RAAS)
of the IRS from the Compliance Data
Warehouse (CDW). Data for Form 1120
represents estimates of the total number of
taxpayers that may attach an election state-
ment to their Form 1120 to make the elec-
tions in §1.1502-21T(b)(3)(ii)(C)(5)(i) and
§1.1502-21T(b)(3)(ii)(C)(5)(ii).
It is estimated that 17,500 consolidat-
ed entities will be required to attach a
statement under these temporary regula-
tions. The burden associated with the in-
formation collections in these temporary
regulations are included in aggregated
burden estimates for the OMB control
number 1545-0123. The burden esti-
mates provided in the OMB control num-
bers in the following table are aggregate
amounts that relate to the entire pack-
age of forms associated with the OMB
control number, and will in the future
include, but not isolate, the estimated
burden of those information collections
associated with these temporary regu-
lations. To guard against over-counting
the burden that consolidated tax provi-
sions imposed prior to §1.1502-21T, the
Treasury Department and the IRS urge
readers to recognize that these burden
estimates have also been cited by regu-
lations that rely on the applicable OMB
control numbers in order to collect in-
formation from the applicable types of
filers.
FormType of FilerOMB Number(s)Status
Form 1120
Corporation1545-0123
Published in the Federal Register on 9/30/19. Public comment period
closed on 11/29/19. Approved by OIRA through 1/31/2021.
Link: https://www.federalregister.gov/documents/2018/10/09/2018-21846/proposed-collection-comment-request-
for-forms-1065-1065-b-1066-1120-1120-1120-f-1120-h-1120-nd
Source: RAAS:CDW
III. Regulatory Flexibility Act
These temporary regulations do not im-
pose a collection of information on small
entities. Further, pursuant to the Regulato-
ry Flexibility Act (5 U.S.C. chapter 6), it is
hereby certified that these temporary reg-
ulations would not have a significant eco-
nomic impact on a substantial number of
small entities. This certification is based
on the fact that these temporary regula-
tions apply only to corporations that file
consolidated Federal income tax returns,
and that such corporations tend to be larg-
er businesses. Therefore, these temporary
regulations would not create additional
obligations for, or impose an economic
impact on, small entities.
Pursuant to section 7805(f) of the In-
ternal Revenue Code, these temporary
regulations have been submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment on
its impact on small business.
IV. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates
Reform Act of 1995 requires that agencies
assess anticipated costs and benefits and
take certain other actions before issuing a
final rule that includes any Federal man-
date that may result in expenditures in any

July 20, 2020 148 Bulletin No. 2020–30
one year by a state, local, or tribal govern-
ment, in the aggregate, or by the private
sector, of $100 million in 1995 dollars,
updated annually for inflation. In 2020,
that threshold is approximately $156 mil-
lion. This rule does not include any Fed-
eral mandate that may result in expendi-
tures by state, local, or tribal governments,
or by the private sector in excess of that
threshold.
V. Executive Order 13132: Federalism
Executive Order 13132 (entitled
“Federalism”) prohibits an agency from
publishing any rule that has federalism
implications if the rule either imposes
substantial, direct compliance costs on
state and local governments, and is not
required by statute, or preempts state law,
unless the agency meets the consultation
and funding requirements of section 6 of
the Executive Order. These temporary
regulations do not have federalism im-
plications, do not impose substantial di-
rect compliance costs on state and local
governments, and do not preempt state
law within the meaning of the Executive
Order.
Statement of Availability of IRS
Documents
IRS Revenue Procedures, Revenue
Rulings, and Notices cited in this pream-
ble are published in the Internal Revenue
Bulletin (or Cumulative Bulletin) and are
available from the Superintendent of Doc-
uments, U.S. Government Publishing Of-
fice, Washington, DC 20402, or by visit-
ing the IRS website at http://www.irs.gov.
Drafting Information
The principal author of these regula-
tions is Jonathan R. Neuville of the Office
of Associate Chief Counsel (Corporate).
However, other personnel from the Trea-
sury Department and the IRS participated
in their development.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and record-
keeping requirements.
26 CFR Part 602
Reporting and recordkeeping require-
ments.
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 1 and 602
are amended as follows:
PART 1—INCOME TAX
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.1502-21T is revised to
read as follows:
§1.1502-21T Net operating losses
(temporary).
(a) For further guidance, see §1.1502-
21(a).
(b) For further guidance, see §1.1502-
21(b) introductory text through (b)(2).
(1) and (2) [Reserved]
(3) For further guidance, see §1.1502-
21(b)(3) introductory text through (b)(3)
(ii)(B).
(i) [Reserved]
(ii)(A) [Reserved]
(B) [Reserved]
(C) Waiver of carryback period for
losses in taxable years to which statu-
torily amended carryback rules apply—
(1) In general. An acquiring group may
make either (but not both) an amended
statute split-waiver election or an extend-
ed split-waiver election with respect to a
particular amended carryback CNOL.
(See paragraph (b)(3)(ii)(C)(2) of this
section for definitions of terms used in
this paragraph (b)(3)(ii)(C) and para-
graph (b)(3)(ii)(D) of this section.) These
elections are available only if the statuto-
ry amendment to the carryback period re-
ferred to in paragraph (b)(3)(ii)(C)(2)(iv)
of this section occurs after the date of ac-
quisition of an acquired member. A sepa-
rate election is available for each taxable
year to which amended carryback rules
apply. An acquiring group may make an
amended statute split-waiver election or
an extended split-waiver election only if
the acquiring group, with regard to that
election—
(i) Satisfies the requirements in para-
graph (b)(3)(ii)(C)(3) of this section; and
(ii) Follows the procedures in para-
graphs (b)(3)(ii)(C)(5) and (6) of this sec-
tion, as relevant to that election.
(2) Definitions. The definitions provid-
ed in this paragraph (b)(3)(ii)(C)(2) ap-
ply for purposes of this paragraph (b)(3)
(ii)(C) and paragraph (b)(3)(ii)(D) of this
section.
(i) Acquired member. The term ac-
quired member means a member of a con-
solidated group that joins another consol-
idated group.
(ii) Acquiring group. The term acquir-
ing group means a consolidated group that
has acquired a former member of another
consolidated group (that is, an acquired
member).
(iii) Amended carryback CNOL. The
term amended carryback CNOL means
the portion of a CNOL attributable to an
acquired member (determined pursuant
to §1.1502-21(b)(2)(iv)(B)) arising in a
taxable year to which amended carryback
rules apply.
(iv) Amended carryback rules. The
term amended carryback rules means
the rules of section 172 of the Code after
amendment by statute to extend the car-
ryback period for NOLs attributable to an
acquired member (determined pursuant to
§1.1502-21(b)(2)(iv)(B)).
(v) Amended statute split-waiv-
er election. The term amended statute
split-waiver election means, with respect
to any amended carryback CNOL, an
irrevocable election made by an acquir-
ing group to relinquish the portion of the
carryback period (including the default
carryback period and the extended carry-
back period) for that loss during which an
acquired member was a member of any
former group.
(vi) Amended statute split-waiver elec-
tion statement. The term amended statute
split-waiver election statement has the
meaning provided in paragraph (b)(3)(ii)
(C)(5)(i) of this section.
(vii) Default carryback period. The
term default carryback period means the
NOL carryback period existing at the
time the acquiring group acquired the ac-
quired member, before the applicability of
amended carryback rules.
(viii) Extended carryback period. The
term extended carryback period means

Bulletin No. 2020–30 149 July 20, 2020
the additional taxable years added to a
default carryback period by any amended
carryback rules.
(ix) Extended split-waiver election.
The term extended split-waiver election
means, with respect to any amended car-
ryback CNOL, an irrevocable election
made by an acquiring group to relinquish
solely the portion of the extended carry-
back period (and no part of the default car-
ryback period) for that loss during which
an acquired member was a member of any
former group.
(x) Extended split-waiver election
statement. The term extended split-waiver
election statement has the meaning pro-
vided in paragraph (b)(3)(ii)(C)(5)(ii) of
this section.
(xi) Former group. The term former
group means a consolidated group of
which an acquired member previously
was a member.
(3) Conditions for making an amend-
ed statute split-waiver election or an ex-
tended split-waiver election. An acquir-
ing group may make an amended statute
split-waiver election or an extended
split-waiver election (but not both) with
respect to an amended carryback CNOL
only if—
(i) The acquiring group has not filed a
valid election described in §1.1502-21(b)
(3)(ii)(B) with respect to the acquired
member on or before the effective date of
amended carryback rules;
(ii) The acquiring group has not filed a
valid election described in section 172(b)
(3) and §1.1502-21(b)(3)(i) with respect
to a CNOL of the acquiring group from
which the amended carryback CNOL is
attributed to the acquired member;
(iii) Any other corporation joining the
acquiring group that was affiliated with
the acquired member immediately before
the acquired member joined the acquiring
group is included in the waiver; and
(iv) A former group does not claim any
carryback (as provided in paragraph (b)
(3)(ii)(C)(4) of this section) to any taxable
year in the carryback period (in the case of
an amended statute split-waiver election)
or in the extended carryback period (in the
case of an extended split-waiver election)
with respect to the amended carryback
CNOL on a return or other filing filed on
or before the date the acquiring group files
the election.
(4) Claim for a carryback. For pur-
poses of paragraph (b)(3)(ii)(C)(3)(iv) of
this section, a carryback is claimed with
respect to an amended carryback CNOL
if there is a claim for refund, an amended
return, an application for a tentative car-
ryback adjustment, or any other filing that
claims the benefit of the NOL in a taxable
year prior to the taxable year of the loss,
whether or not subsequently revoked in
favor of a claim based on the period pro-
vided for in the amended carryback rules.
(5) Procedures for making an amended
statute split-waiver election or an extend-
ed split-waiver election—(i) Amended
statute split-waiver election. An amend-
ed statute split-waiver election must be
made in a separate statement entitled
“THIS IS AN ELECTION UNDER SEC-
TION 1.1502-21T (b)(3)(ii)(C)(1 ) TO
WAIVE THE PRE-[insert first day of the
first taxable year for which the acquired
member was a member of the acquiring
group] CARRYBACK PERIOD FOR
THE CNOLS ATTRIBUTABLE TO THE
[insert taxable year of losses] TAXABLE
YEAR(S) OF [insert names and employ-
er identification numbers of members]”
(amended statute split-waiver election
statement). This statement must be filed as
provided in paragraph (b)(3)(ii)(C)(6) of
this section.
(ii) Extended split-waiver election.
An extended split-waiver election must
be made in a separate statement entitled
“THIS IS AN ELECTION UNDER SEC-
TION 1.1502-21T (b)(3)(ii)(C)(1 ) TO
WAIVE THE PRE-[insert first day of the
first taxable year for which the acquired
member was a member of the acquiring
group] EXTENDED CARRYBACK PE-
RIOD FOR THE CNOLS ATTRIBUT-
ABLE TO THE [insert taxable year of
losses] TAXABLE YEAR(S) OF [insert
names and employer identification num-
bers of members]” (extended split-waiver
election statement). This statement must
be filed as provided in paragraph (b)(3)(ii)
(C)(6) of this section.
(6) Time and manner for filing state-
ment—(i) In general. Except as other-
wise provided in paragraph (b)(3)(ii)(C)
(6)(ii) or (iii) of this section, an amended
statute split-waiver election statement or
extended split-waiver election statement
must be filed with the acquiring group’s
timely filed consolidated return (including
extensions) for the year during which the
amended carryback CNOL is incurred.
(ii) Amended returns. This paragraph
(b)(3)(ii)(C)(6)(ii) applies if the date of the
filing required under paragraph (b)(3)(ii)
(C)(6)(i) of this section is not at least 150
days after the date of the statutory amend-
ment to the carryback period referred to
in paragraph (b)(3)(ii)(C)(2)(iv) of this
section. Under this paragraph (b)(3)(ii)
(C)(6)(ii), an amended statute split-waiver
election statement or extended split-waiv-
er election statement may be attached to
an amended return filed by the date that
is 150 days after the date of the statutory
amendment referred to in paragraph (b)(3)
(ii)(C)(2)(iv) of this section.
(iii) Certain taxable years beginning
before January 1, 2021. This paragraph
(b)(3)(ii)(C)(6)(iii) applies to taxable
years beginning before January 1, 2021,
for which the date of the filing required
under paragraph (b)(3)(ii)(C)(6)(i) of this
section precedes July 3, 2023. Under this
paragraph (b)(3)(ii)(C)(6)(iii), an amend-
ed statute split-waiver election statement
or extended split-waiver election state-
ment may be attached to an amended re-
turn filed by July 3, 2023.
(D) Examples. The following exam-
ples illustrate the rules of paragraph (b)
(3)(ii)(C) of this section. For purposes of
these examples: all affiliated groups file
consolidated returns; all corporations are
includible corporations that have calen-
dar taxable years; each of P, X, and T is a
corporation having one class of stock out-
standing; each of P and X is the common
parent of a consolidated group (P Group
and X Group, respectively); neither the P
Group nor the X Group includes an insol-
vent financial institution or an insurance
company; no NOL is a farming loss; there
are no other relevant NOL carrybacks to
the X Group’s consolidated taxable years;
except as otherwise stated, the X Group
has sufficient consolidated taxable income
determined under §1.1502-11 (CTI) to
absorb the stated NOL carryback by T; T
has sufficient SRLY register income with-
in the X Group to absorb the stated NOL
carryback by T; all transactions occur be-
tween unrelated parties; and the facts set
forth the only relevant transactions.
(1) Example 1: Computation and absorption of
amended carrybacks—(i) Facts. In Year 1, T became
a member of the X Group. On the last day of Year
5, P acquired all the stock of T from X. At the time

July 20, 2020 150 Bulletin No. 2020–30
of P’s acquisition of T stock, the default carryback
period was zero taxable years. The P Group did not
make an irrevocable split-waiver election under
§1.1502-21(b)(3)(ii)(B) to relinquish, with respect to
all CNOLs attributable to T while a member of the P
Group, the portion of the carryback period for which
T was a member of the X Group (that is, a former
group). In Year 7, the P Group sustained a $1,000
CNOL, $600 of which was attributable to T pursuant
to §1.1502-21(b)(2)(iv)(B). In that year, P did not
make an irrevocable general waiver election under
section 172(b)(3) and §1.1502-21(b)(3)(i) with re-
spect to the $1,000 CNOL when the P Group filed its
consolidated return for Year 7. In Year 8, legislation
was enacted that amended section 172 to require a
carryback period of five years for NOLs arising in a
taxable year beginning after Year 5 and before Year
9.
(ii) Analysis. As a result of the amended carryback
rules enacted in Year 8, the P Group’s $1,000 CNOL
in Year 7 must be carried back to Year 2. Therefore,
T’s $600 attributed portion of the P Group’s Year 7
CNOL (that is, T’s amended carryback CNOL) must
be carried back to taxable years of the X Group. See
§§1.1502-21(b)(1) and 1.1502-21(b)(2)(i). To the ex-
tent T’s amended carryback CNOL is not absorbed
in the X Group’s Year 2 taxable year, the remaining
portion must be carried to the X Group’s Year 3, Year
4, and Year 5 taxable years, as appropriate. See id.
Any remaining portion of T’s amended carryback
CNOL is carried to consolidated return years of the P
Group. See §1.1502-21(b)(1).
(2) Example 2: Amended statute split-waiver
election—(i) Facts. The facts are the same as in
paragraph (b)(3)(ii)(D)(1)(i) of this section (Exam-
ple 1), except that, following the change in statutory
carryback period in Year 8, the P Group made a valid
amended statute split-waiver election under para-
graph (b)(3)(ii)(C) of this section to relinquish solely
the carryback of T’s amended carryback CNOL.
(ii) Analysis. Because the P Group made a valid
amended statute split-waiver election, T’s amended
carryback CNOL is not eligible to be carried back to
any taxable years of the X Group (that is, a former
group). However, the amended statute split-waiver
election does not prevent T’s Year 7 amended carry-
back CNOL from being carried back to years of the
P group (that is, the acquiring group) during which
T was a member. See paragraph (b)(3)(ii)(C)(2)(v)
of this section. As a result, the entire amount of T’s
amended carryback CNOL is eligible to be carried
back to taxable Year 6 of the P Group. Any remaining
CNOL may then be carried over within the P Group.
See §1.1502-21(b)(1).
(3) Example 3: Computation and absorption of
extended carrybacks—(i) Facts. The facts are the
same as in paragraph (b)(3)(ii)(D)(1)(i) of this sec-
tion (Example 1), except that the X Group had $300
of CTI in Year 4 and $200 of CTI in Year 5 and, at
the time of the P Group’s acquisition of T, the default
carryback period was two years. Therefore, T’s $600
attributed portion of the P Group’s Year 7 CNOL was
required to be carried back to the X Group’s Year
5 taxable year, and the X Group was able to offset
$200 of CTI in Year 5.
(ii) Analysis. As a result of the amended carry-
back rules, the X Group must offset its $300 of CTI
in Year 4 against T’s amended carryback CNOL.
See §§1.1502-21(b)(1) and (b)(2)(i). The remaining
$100 ($600 - $300 - $200) of T’s amended carryback
CNOL is carried to taxable years of the P Group. See
§1.1502-21(b)(1).
(4) Example 4: Extended split-waiver election—
(i) Facts. The facts are the same as in paragraph (b)
(3)(ii)(D)(3)(i) of this section (Example 3), except
that, following the change in law in Year 8, the P
Group made a valid extended split-waiver election
under paragraph (b)(3)(ii)(C) of this section to relin-
quish the extended carryback period for T’s amended
carryback CNOL for years in which T was a member
of the X Group.
(ii) Analysis. As a result of the P Group’s ex-
tended split-waiver election, T’s amended carryback
CNOL is not eligible to be carried back to any por-
tion of the extended carryback period (that is, any
taxable year prior to Year 5). See paragraph (b)(3)
(ii)(C)(
2)(ix) of this section. As a result, the X Group
absorbs $200 of T’s $600 loss in Year 5, and the
remaining $400 ($600 - $200) is carried to taxable
years of the P Group. See §1.1502-21(b)(1).
(iii) For further guidance, see §1.1502-
21(b)(3)(iii).
(iv) and (v) [Reserved]
(c) For further guidance, see §1.1502-
21(c) through (h)(8).
(d) through (j) [Reserved]
(h)(1) through (8) [Reserved]
(9) Amended carryback rules—(i)
Applicability date. Paragraphs (b)(3)(ii)
(C) and (D) of this section apply to any
CNOLs arising in a taxable year ending
after July 2, 2020. However, taxpayers
may apply paragraphs (b)(3)(ii)(C) and
(D) of this section to any CNOLs arising
in a taxable year beginning after Decem-
ber 31, 2017.
(ii) Expiration date. The applicability
of paragraphs (b)(3)(ii)(C) and (D) of this
section will expire on June 30, 2023.
PART 602—OMB CONTROL
NUMBERS UNDER THE
PAPERWORK REDUCTION ACT
Par. 3. The authority citation for part
602 continues to read as follows:
Authority: 26 U.S.C. 7805.
Par. 4. In §602.101, paragraph (b), the
entry for §1.1502-21T is revised to read
as follows:
§602.101 OMB Control Numbers.
* * * * *
(b) * * *
CFR part or section where identified and
described
Current OMB control No.
* * * * * * *
1.1502.21T . . . . . . . . . . . . . . . . . . . . . . . .1545-0123
* * * * * * *
Douglas W. O’Donnell
Acting Deputy Commissioner for
Services and Enforcement.
Approved: June 23, 2020
David J. Kautter
Assistant Secretary of the Treasury
(Tax Policy).
(Filed by the Office of the Federal Register on July
2, 2020, 4:15 p.m., and published in the issue of the
Federal Register for July 8, 2020, 85 F.R. 40892)

Bulletin No. 2020–30 151 July 20, 2020
Part III
Notice 2020-53
I. PURPOSE
In response to the ongoing Coronavi-
rus Disease 2019 (COVID–19) pandemic,
this notice provides temporary relief from
certain requirements under § 42 of the In-
ternal Revenue Code (Code) for qualified
low-income housing projects and under
§§ 142(d) and 147(d) of the Code for qual-
ified residential rental projects. Section
IV of this notice describes the Agencies,
Issuers, Operators, and Owners eligible
for the relief granted in section V of this
notice, which provides relief pursuant to
§ 7508A(a) of the Code, and section VI of
this notice, which provides relief pursuant
to § 1.42–13(a) of the Income Tax Regu-
lations. In this notice, the terms “Agency,”
“Issuer,” “Operator,” and “Owner” have
the same meanings as described in section
5 of Rev. Proc. 2014-49, 2014-37 I.R.B.
535, or section 4 of Rev. Proc. 2014-50,
2014-37 I.R.B. 540.
II. BACKGROUND
A. Qualified low-income housing projects
Section 42(a) provides that the amount
of the low-income housing credit for any
taxable year in the credit period is an
amount equal to the applicable percent-
age of the qualified basis of each qualified
low-income building.
Section 42(c)(1)(A) provides that the
qualified basis of any qualified low-in-
come building for any taxable year is an
amount equal to (i) the applicable fraction
(determined as of the close of the tax-
able year) of (ii) the eligible basis of the
building (determined under § 42(d)(4)).
Sections 42(c) and 42(d) define applicable
fraction and eligible basis. Section 42(d)
(1) and (2) define the eligible basis of a
new building and an existing building, re-
spectively.
Section 42(c)(2) defines a qualified
low-income building as any building
which is part of a qualified low-income
housing project at all times during the
“compliance period” (that is, the period of
15 taxable years beginning with the first
taxable year of the credit period) and to
which the amendments made by section
201(a) of the Tax Reform Act of 1986
(Pub. L. No. 99–514) apply. To qualify as
a low-income housing project, one of the
§ 42(g) minimum set-aside tests, as elect-
ed by the taxpayer, must be satisfied.
Under § 42(d)(4)(A) and (B), the eligi-
ble basis for a qualified low-income build-
ing includes the adjusted basis of the prop-
erty (of a character subject to the allowance
of depreciation) used in common areas or
provided as comparable amenities to all
residential rental units in the building.
Section 42(e) provides general rules
under which rehabilitation expenditures
incurred by taxpayers related to a low-in-
come building may be treated as a separate
new building. Under § 42(e)(3)(A)(ii), to
qualify as a separate new building, the re-
habilitation expenditures with respect to a
low-income building during a 24-month
period (§ 42(e) 24-month minimum reha-
bilitation expenditure period) must be at
least the greater of two statutory criteria.
Section 42(g) sets forth three alterna-
tive minimum set-aside tests for low-in-
come housing projects. The Owner of
a project must elect one and satisfy that
chosen test each taxable year. Once a tax-
payer elects to use a particular set-aside
test, the election is irrevocable.
Section 42(h)(1)(E) provides gener-
al rules for carryover allocations of the
low-income housing credit. A carryover
allocation is defined in § 1.42-6(a)(1) of
the Income Tax Regulations as an alloca-
tion that meets the requirements of § 42(h)
(1)(E) (relating to carryover allocations
for single buildings) or § 42(h)(1)(F) (re-
lating to carryover allocations for multiple
building projects).
Under § 42(h)(1)(E)(i), if a qualified
building is placed in service not later than
a statutorily specified date, the building is
relieved of a requirement concerning the
timing of the allocation. Section 42(h)(1)
(E)(ii) provides in part, for purposes of
§ 42(h)(1)(E)(i), that the term “qualified
building” means any building which is
part of a project if the taxpayer’s basis in
the project (as of the date that is 1 year af-
ter the date that the allocation was made)
is more than 10 percent of the taxpayer’s
reasonably expected basis in the project
(as of the close of the second calendar
year following the calendar year in which
an allocation is made) (10-percent test).
In general, under § 42(j)(1), if (1) a
building is beyond the first year of the
credit period, and (2) at the end of the
taxable year, the building’s qualified ba-
sis with respect to the taxpayer is less than
the qualified basis with respect to the tax-
payer at the end of the preceding taxable
year, then the credits, if any, for the year
of the reduction are determined using the
reduced qualified basis, and the taxpayer’s
Federal income tax liability for the year
of the reduction is increased by the credit
recapture amount prescribed in § 42(j)(2).
Section 42(j)(4)(E) provides generally
that a building is not subject to recapture
by reason of a casualty loss to the extent
the loss is restored by reconstruction or re-
placement within a reasonable period es-
tablished by the Secretary of the Treasury
or his delegate (Secretary).
Section 42(m)(1) requires an Agency
to allocate housing credit dollar amounts
among candidate proposed housing proj-
ects. The allocation must be pursuant to a
qualified allocation plan (QAP) that has
been approved by the governmental unit
of which the Agency is a part. A QAP not
only sets forth selection criteria by which
an Agency makes these allocations but
also provides a procedure that the Agency
must follow in monitoring for noncompli-
ance with the provisions of § 42, includ-
ing monitoring for noncompliance with
habitability standards through regular site
visits.
Section 1.42-5 provides the general re-
quirements of Agencies’ compliance-mon-
itoring responsibilities under their moni-
toring procedures that must be part of any
QAPs. Among the requirements, an Agen-
cy must perform physical inspections and
low-income certification review.
Section 1.42-5(c)(1)(iii) requires, gen-
erally, that the Owner of a low-income
housing project certify at least annual-
ly to the Agency that, for the preceding
12-month period, the Owner has received
an annual income certification from each
low-income tenant, and the documenta-
tion to support that certification.

July 20, 2020 152 Bulletin No. 2020–30
Under § 1.42-13(a), the Secretary may
provide guidance to carry out the purposes
of § 42 through various publications in the
Internal Revenue Bulletin.
B. Qualified residential rental projects
financed by bonds
Generally, under § 103 of the Code,
private activity bonds that are not qual-
ified bonds within the meaning of § 141
of the Code are not tax-exempt. Section
141(e) provides in part that the term
“qualified bond” means any private ac-
tivity bond if such bond is an exempt
facility bond, and § 142(a) provides in
part that the term “exempt facility bond”
means any bond issued as part of an issue
95 percent or more of the net proceeds of
which are to be used to provide qualified
residential rental projects. To be a quali-
fied residential rental project, a residential
rental housing project must meet the re-
quirements in § 142(d).
Section 142(d)(1) provides that the term
“qualified residential rental project” means
any project for residential rental property
if, at all times during the qualified project
period, such project meets the requirements
under § 142(d)(1)(A) or (B) (§ 142(d) set-
aside requirements), whichever is elected
by the Issuer at the time of the issuance of
the issue with respect to such project.
Section 142(d)(2)(A) provides that the
term “qualified project period” means the
period beginning on the first day on which
10 percent of the residential units in the
project are occupied and ending on the
latest of (i) the date that is 15 years after
the date on which 50 percent of the resi-
dential units in the project are occupied,
(ii) the first day on which no tax-exempt
private activity bond issued with respect
to the project is outstanding, or (iii) the
date on which any assistance provided
with respect to the project under section 8
of the United States Housing Act of 1937
terminates.
Rev. Proc. 2004-39, 2004-2 C.B. 49,
sets forth procedures for determining
whether a residential rental project com-
plies with the applicable § 142(d) set-
aside requirements during the qualified
project period. Under section 5.02 of
Rev. Proc. 2004-39, for a period of up to
12 months beginning on the issue date of
bonds issued to acquire an existing resi-
dential rental project (12-month transition
period), a failure to satisfy the § 142(d)
set-aside requirements will not cause the
acquired project to fail to be a qualified
residential rental project.
Section 147(d)(1) provides, with cer-
tain exceptions, that a private activity
bond shall not be a qualified bond if is-
sued as part of an issue and any portion
of the net proceeds of such issue is to be
used for the acquisition of any property
(or an interest therein) unless the first use
of such property is pursuant to such acqui-
sition. The private activity bonds to which
§ 147(d) applies include bonds to finance
qualified residential rental projects.
Section 147(d)(2) provides that
§ 147(d)(1) shall not apply with respect to
any building (and the equipment therefor)
if the rehabilitation expenditures with re-
spect to such building, equal or exceed 15
percent of the portion of the cost of ac-
quiring such building (and equipment) fi-
nanced with the net proceeds of the issue.
Section 147(d)(3)(C) provides that the
term “rehabilitation expenditures” shall
not include any amount which is incurred
after the date 2 years after the later of (i)
the date on which the building was ac-
quired, or (ii) the date on which the bond
was issued (§ 147(d) 2-year rehabilitation
expenditure period).
C. Postponement of certain deadlines by
reason of Presidentially declared disasters
Section 7508A provides the Secretary
with authority to postpone the time for
performing certain acts under the internal
revenue laws for a taxpayer determined by
the Secretary to be affected by a Federal-
ly declared disaster as defined in § 165(i)
(5)(A). Pursuant to § 7508A(a), a period
of up to one year may be disregarded in
determining whether the performance of
certain acts is timely under the internal
revenue laws.
On March 13, 2020, the President of
the United States issued an emergency
declaration under the Robert T. Stafford
Disaster Relief and Emergency Assistance
Act (Stafford Act), 42 U.S.C. 5121 et seq.,
in response to the ongoing COVID-19
pandemic (Emergency Declaration).
1

The Emergency Declaration instructed
the Secretary of the Treasury “to provide
relief from tax deadlines to Americans
who have been adversely affected by the
COVID-19 emergency, as appropriate,
pursuant to 26 U.S.C. 7508A(a).” Subse-
quent to the Emergency Declaration, the
President issued major disaster declara-
tions under the authority of the Stafford
Act with respect to all 50 States, the Dis-
trict of Columbia, and 5 territories (Major
Disaster Declarations).
2
In the context of a Presidentially-de-
clared Major Disaster, Rev. Proc. 2014-49
provides temporary relief from certain re-
quirements of § 42 for Agencies and Own-
ers of low-income housing projects. Under
section 8 of Rev. Proc. 2014-49, in the case
of a casualty loss suffered due to a Major
Disaster that has reduced a low-income
building’s qualified basis, the Agency that
has jurisdiction over the building must de-
termine what constitutes a reasonable res-
toration period. The reasonable restoration
period established by the Agency must not
extend beyond the end of the 25th month
following the close of the month of the Ma-
jor Disaster declaration (25-month reason-
able restoration period).
Rev. Proc. 2014-49 also provides emer-
gency housing relief for individuals who
are displaced by a Major Disaster from
their principal residences in certain Major
Disaster Areas. See Rev. Proc. 2014-49,
sections 12–14.
In the context of a Presidentially-de-
clared Major Disaster, Rev. Proc. 2014-
50 provides temporary relief from certain
requirements under § 142(d) for qualified
residential rental projects financed with
exempt facility bonds issued by State and
local governments under § 142. Rev. Proc.
2014-50 also provides emergency housing
relief for individuals who are displaced by
a Major Disaster from their principal res-
idences in certain Major Disaster Areas.
See Rev. Proc. 2014-50, sections 5–7.
III. NOTICE 2020-23 AND RELIEF
UNDER SECTION 42
On April 9, 2020, the Department of the
Treasury and the Internal Revenue Service
issued Notice 2020-23, 2020-18 I.R.B.
1
See https://www.whitehouse.gov/wp-content/uploads/2020/03/LetterFromThePresident.pdf.
2
See https://www.fema.gov/coronavirus/disaster-declarations.

Bulletin No. 2020–30 153 July 20, 2020
742, which provided certain relief to affect-
ed taxpayers and postponed due dates until
July 15, 2020, with respect to certain tax
filings and payments, certain time-sensitive
government actions, and all time-sensitive
actions listed in Rev. Proc. 2018-58, 2018-
50 I.R.B. 990 (Dec. 10, 2018), that were
due to be performed on or after April 1,
2020, and before July 15, 2020. See Notice
2020-23 and Rev. Proc. 2018-58. Among
the relief granted, Notice 2020-23 (refer-
encing Rev. Proc. 2018-58) postponed until
July 15, 2020, the time to perform certain
time-sensitive actions for purposes of § 42
that are due to be performed on or after
April 1, 2020, and before July 15, 2020.
These time-sensitive actions listed in Rev.
Proc. 2018-58 include, among others:
Statute or RegulationAct Postponed
§ 42(h)(1)(E) and (F)The taxpayer’s basis in the building project, as of the date which is one year after the date that the
allocation was made, must be more than 10 percent of the taxpayer’s reasonably expected basis in
the project.
§ 42(e)(3)(A)(ii)The taxpayer has a 24-month measuring period in which the requisite amount of rehabilitation
expenditures has to be incurred in order to qualify for treatment as a separate new building.
§ 1.42-5(c)The taxpayer must make certain certifications at least annually to the Agency.
Rev. Proc. 2018-58, section 15, 2018–50
IRB at 1015.
Thus, in addition to other postpone-
ments (including other postponements
for purposes of § 42 listed in Rev. Proc.
2018-58), Notice 2020-23 postponed until
July 15, 2020, the time to perform the fol-
lowing time-sensitive actions for purposes
of § 42 that are due to be performed on
or after April 1, 2020, and before July 15,
2020:
• The 10-percent test under § 42(h)(1)
(E)(ii);
• The 24-month minimum rehabilita-
tion expenditure period under § 42(e);
and
• The income recertification require-
ment under § 1.42-5(c)(1)(iii).
IV. SCOPE OF THE RELIEF
GRANTED IN THIS NOTICE
Sections V.A though E and VI.A
through D of this notice apply to low-in-
come housing projects under § 42, to
qualified residential rental projects under
§ 142(d), and to Agencies, Issuers, Own-
ers, and Operators that have responsibili-
ties with respect to those projects. Section
V.F of this notice applies to bonds for
qualified residential rental projects that
would be qualified bonds (as defined in
§ 141(e)) if the requirements of § 147(d)
(2) were satisfied. The persons described
in this section IV have been determined
by the Secretary to be persons affected
by the COVID-19 emergency for the pur-
poses of the relief described in section V
of this notice. In addition, the recipients
of relief described in section VI of this
notice have been determined by the Sec-
retary to be sufficiently affected by the
COVID–19 pandemic to merit the relief
that is provided here under the authority
of § 1.42–13(a).
V. GRANT OF RELIEF PURSUANT TO
SECTION 7508A
A. THE 10-PERCENT TEST FOR
CARRYOVER ALLOCATIONS
For purposes of § 42(h)(1)(E)(ii), if the
last day for an Owner of a building with
a carryover allocation to meet the 10-per-
cent test is on or after April 1, 2020, and
before December 31, 2020, the last day for
the Owner to meet the 10-percent test is
postponed to December 31, 2020.
B. THE § 42(e) 24-MONTH MINIMUM
REHABILITATION EXPENDITURE
PERIOD
For purposes of § 42(e)(3)(A)(ii), if
the 24-month minimum rehabilitation
expenditure period for a building origi-
nally ends on or after April 1, 2020, and
before December 31, 2020, the last day
for the Owner to incur the minimum re-
habilitation expenditures with respect to
the building is postponed to December
31, 2020.
C. REASONABLE PERIOD FOR
RESTORATION OR REPLACEMENT
IN THE EVENT OF CASUALTY LOSS
For purposes of § 42(j)(4)(E), if a
low-income building has suffered a ca-
sualty loss and the reasonable period
to restore by reconstruction or replace-
ment ends on or after April 1, 2020,
and before December 31, 2020, the
last day for the Owner of the building
to restore the loss by reconstruction or
replacement is postponed to December
31, 2020.
D. REASONABLE RESTORATION
PERIOD IN THE EVENT OF PRIOR
MAJOR DISASTER
For purposes of section 8.02 of Rev.
Proc. 2014-49, if a low-income build-
ing, due to a prior Major Disaster, has
suffered a casualty loss that would have
reduced its qualified basis and if the rea-
sonable restoration period determined by
the Agency for the building ends on or
after April 1, 2020, and before December
31, 2020, the last day for the Owner of
the building to complete the repair and
restoration is postponed to December 31,
2020.
E. THE 12-MONTH TRANSITION
PERIOD TO MEET SET-ASIDES FOR
QUALIFIED RESIDENTIAL RENTAL
PROJECTS
For purposes of section 5.02 of Rev.
Proc. 2004-39, the last day of a 12-month
transition period for a qualified residential
rental project that ends on or after April 1,
2020, and before December 31, 2020, is
postponed to December 31, 2020.

July 20, 2020 154 Bulletin No. 2020–30
F. THE § 147(d) 2-YEAR
REHABILITATION EXPENDITURE
PERIOD FOR BONDS USED TO
PROVIDE QUALIFIED RESIDENTIAL
RENTAL PROJECTS
If a bond is used to provide a quali-
fied residential rental project and if the
§ 147(d) 2-year rehabilitation expendi-
ture period for the bond ends on or after
April 1, 2020, and before December 31,
2020, the last day of that period is post-
poned to December 31, 2020.
VI. GRANT OF RELIEF PURSUANT
TO § 1.42-13(a)
A. INCOME RECERTIFICATIONS
An Owner of a low-income building
is not required to perform income recer-
tifications under § 1.42-5(c)(1)(iii) in the
period beginning on April 1, 2020, and
ending on December 31, 2020. The Own-
er must resume the income recertifications
as due under § 1.42-5(c)(1)(iii) after De-
cember 31, 2020.
B. COMPLIANCE-MONITORING
For purposes of § 1.42-5, an Agency is
not required to conduct compliance-moni-
toring inspections or reviews in the period
beginning on April 1, 2020, and ending on
December 31, 2020. The Agency must re-
sume compliance-monitoring inspections
or reviews as due under § 1.42-5 after De-
cember 31, 2020.
C. COMMON AREAS AND
AMENITIES
If an amenity or common area in a
low-income building or project is tempo-
rarily unavailable or closed during some
or all of the period from April 1, 2020 to
December 31, 2020, in response to the
COVID-19 pandemic, and not because
of other noncompliance for § 42 purpos-
es, this temporary closure does not result
in a reduction of the eligible basis of the
building.
D. EMERGENCY HOUSING FOR
MEDICAL PERSONNEL AND OTHER
ESSENTIAL WORKERS
If individuals who are medical person-
nel or other essential workers (as defined
by State or local governments) provide
services during the COVID-19 pandemic,
then, for purposes of providing emergency
housing from April 1, 2020, to December
31, 2020, under Rev. Proc. 2014-49 or un-
der Rev. Proc. 2014-50, Agencies, Issuers,
Owners, and Operators of low-income
housing projects may treat these individ-
uals as if they were Displaced Individuals
(defined under section 5.02 of Rev. Proc.
2014-49 or Section 4.04 of Rev. Proc.
2014-50, as applicable). That is, Agen-
cies, Issuers, Owners, and Operators may
provide emergency housing for these in-
dividuals pursuant to the provisions of the
applicable revenue procedure. See sections
12, 13, and 14 of Rev. Proc. 2014-49 and
sections 5, 6, and 7 of Rev. Proc. 2014-50.
VII. EFFECTIVE DATE
This notice is effective as of July 1,
2020.
VIII. EFFECT ON OTHER
DOCUMENTS
Notice 2020-23, Rev. Proc. 2004-39,
Rev. Proc. 2014-49, and Rev. Proc. 2014-
50 are amplified.
IX. DRAFTING INFORMATION
The principal authors of this notice are
Dillon Taylor and Michael J. Torruella
Costa, Office of the Associate Chief Coun-
sel (Passthroughs and Special Industries),
and Timothy L. Jones and David White,
Office of the Associate Chief Counsel
(Financial Institutions and Products). For
further information regarding this notice,
contact Dillon Taylor or Michael J. Tor-
ruella Costa at (202) 317-4137 (not a toll-
free number); contact Timothy L. Jones
or David White at (202) 317-6980 (not a
toll-free number).

Bulletin No. 2020–30 155 July 20, 2020
Part IV
Notice of Proposed
Rulemaking
Credit for Carbon Oxide
Sequestration
REG-112339-19
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemak-
ing.
SUMMARY: This document contains
proposed regulations regarding the credit
for carbon oxide sequestration under sec-
tion 45Q of the Internal Revenue Code
(Code). These proposed regulations will
affect persons who physically or contrac-
tually ensure the capture and disposal of
qualified carbon oxide, use of qualified
carbon oxide as a tertiary injectant in a
qualified enhanced oil or natural gas re-
covery project, or utilization of qualified
carbon oxide in a manner that qualifies for
the credit.
DATES: Written or electronic comments
and requests for a public hearing must be
received by August 3, 2020. Requests for
a public hearing must be submitted as pre-
scribed in the “Comments and Requests
for a Public Hearing” section.
ADDRESSES: Commenters are strongly
encouraged to submit public comments
electronically. Submit electronic submis-
sions via the Federal eRulemaking Portal
at www.regulations.gov (indicate IRS and
REG-112339-19) by following the online
instructions for submitting comments.
Once submitted to the Federal eRulemak-
ing Portal, comments cannot be edited
or withdrawn. The IRS expects to have
limited personnel available to process
public comments that are submitted on
paper through mail. Until further notice,
any comments submitted on paper will be
considered to the extent practicable. The
Department of the Treasury (Treasury
Department) and the IRS will publish for
public availability any comment submit-
ted electronically, and to the extent practi-
cable on paper, to its public docket.
Send paper submissions to: CC:PA:LP-
D:PR (REG-112339-19), room 5203, In-
ternal Revenue Service, PO Box 7604,
Ben Franklin Station, Washington, DC
20044.
FOR FURTHER INFORMATION
CONTACT: Concerning the proposed
regulations, Maggie Stehn of the Office
of Associate Chief Counsel (Passthroughs
& Special Industries) at (202) 317-6853;
concerning submissions of comments and/
or requests for a public hearing, Regina L.
Johnson at (202) 317-5177 (not toll-free
numbers).
SUPPLEMENTARY INFORMATION:
Background
This document contains proposed
amendments to the Income Tax Regula-
tions (26 CFR part 1) under section 45Q
of the Code (proposed regulations).
Section 45Q was enacted on October 3,
2008, by section 115 of Division B of the
Energy Improvement and Extension Act
of 2008, Public Law 110-343, 122 Stat.
3765, 3829, to provide a credit for the se-
questration of carbon oxide. On February
17, 2009, section 45Q was amended by
section 1131 of Division B of the Amer-
ican Recovery and Reinvestment Tax Act
of 2009, Public Law 111-5, 123 Stat 115,
325. Section 45Q was further amended
on December 19, 2014, by section 209(j)
(1) of Division A of the Tax Increase Pre-
vention Act of 2014, Public Law 113-295,
128 Stat. 4010, 4030, and most recently
on February 9, 2018, by section 41119 of
Division D of the Bipartisan Budget Act
of 2018 (BBA), Public Law 115-123, 132
Stat. 64, 162, to encourage the construc-
tion and use of carbon capture and seques-
tration projects.
On May 20, 2019, the IRS published
Notice 2019-32, 2019-21 I.R.B. 1187.
The notice requested general comments
on issues arising under section 45Q, as
well as specific comments concerning se-
cure geological storage, the measurement
of qualified carbon oxide, the recapture
of the benefit of the credit for carbon ox-
ide sequestration, the types of utilization
that qualify for the credit, the beginning
of construction, partnership arrangements,
definitions of terms, and other issues re-
lated to the credit. The IRS received 116
comments from industry participants, en-
vironmental groups, and other stakehold-
ers.
In response to comments submitted
pursuant to Notice 2019-32, on March 9,
2020, the Treasury Department and the
IRS published Revenue Procedure 2020-
12, 2020-11 I.R.B. 511, and Notice 2020-
12, 2020-11 I.R.B. 495. Revenue Proce-
dure 2020-12 provides a safe harbor under
which the IRS will treat partnerships as
properly allocating the section 45Q credit
in accordance with section 704(b). Notice
2020-12 provides guidance on the deter-
mination of when construction has begun
on a qualified facility or on carbon capture
equipment that may be eligible for the sec-
tion 45Q credit.
As requested by commenters, the safe
harbor in Revenue Procedure 2020-12 and
the rules in Notice 2020-12 are similar to
those provided in prior guidance.
Pursuant to section 45Q(h), the Secre-
tary of the Treasury or his delegate (Sec-
retary) may prescribe such regulations
and other guidance as may be necessary
or appropriate to carry out section 45Q,
including regulations or other guidance
to (i) ensure proper allocation under sec-
tion 45Q(a) for qualified carbon oxide
captured by a taxpayer during the taxable
year ending after the date of the enactment
of the BBA, and (ii) determine whether a
facility satisfies the requirements under
section 45Q(d)(1).
Summary of Comments and
Explanation of Provisions
1. General Credit Provisions
a. Credit Amount in General
Section 45Q(a)(1) allows a credit of
$20 per metric ton of qualified carbon ox-
ide (i) captured by the taxpayer using car-
bon capture equipment which is originally
placed in service at a qualified facility be-
fore the date of the enactment of the BBA

July 20, 2020 156 Bulletin No. 2020–30
(February 9, 2018); (ii) disposed of by the
taxpayer in secure geological storage; and
(iii) neither used by the taxpayer as a ter-
tiary injectant in a qualified enhanced oil
or natural gas recovery project nor utilized
in a manner described in section 45Q(f)
(5).
Section 45Q(a)(2) allows a credit of
$10 per metric ton of qualified carbon ox-
ide (i) captured by the taxpayer using car-
bon capture equipment which is originally
placed in service at a qualified facility be-
fore February 9, 2018; and (ii) either (A)
used by the taxpayer as a tertiary injectant
in a qualified enhanced oil or natural gas
recovery project and disposed of by the
taxpayer in secure geological storage; or
(B) utilized by the taxpayer in a manner
described in section 45Q(f)(5).
Section 45Q(a)(3) allows a credit of the
applicable dollar amount (as determined
under section 45Q(b)(1)) per metric ton of
qualified carbon oxide (i) captured by the
taxpayer using carbon capture equipment
which is originally placed in service at a
qualified facility on or after February 9,
2018, during the 12-year period beginning
on the date the equipment was originally
placed in service; (ii) disposed of by the
taxpayer in secure geological storage; and
(iii) neither used by the taxpayer as a ter-
tiary injectant in a qualified enhanced oil
or natural gas recovery project nor utilized
in a manner described in section 45Q(f)
(5).
Section 45Q(a)(4) allows a credit of the
applicable dollar amount (as determined
under section 45Q(b)(1)) per metric ton of
qualified carbon oxide (i) captured by the
taxpayer using carbon capture equipment
which is originally placed in service at a
qualified facility on or after February 9,
2018, during the 12-year period beginning
on the date the equipment was originally
placed in service; and (ii) either (A) used
by the taxpayer as a tertiary injectant in
a qualified enhanced oil or natural gas
recovery project and disposed of by the
taxpayer in secure geological storage, or
(B) utilized by the taxpayer in a manner
described in section 45Q(f)(5).
Section 45Q(b)(1)(A)(i)(I) and (ii)(I)
provides that the applicable dollar amount
for activities under section 45Q(a)(3) for
any taxable year beginning in a calendar
year (1) after 2016 and before 2027 is an
amount equal to the dollar amount es-
tablished by linear interpolation between
$22.66 and $50 for each calendar year
during such period, and (2) after 2026 is
an amount equal to the product of $50 and
the inflation adjustment factor for such
calendar year determined under section
43(b)(3)(B) for such calendar year, deter-
mined by substituting “2025” for “1990.”
Section 45Q(b)(1)(A)(i)(II) and (ii)(II)
provides that the applicable dollar amount
for activities under section 45Q(d)(4) for
any taxable year beginning in a calendar
year (1) after 2016 and before 2027 is an
amount equal to the dollar amount es-
tablished by linear interpolation between
$12.83 and $35 for each calendar year
during such period, and (2) after 2026 is
an amount equal to the product of $35 and
the inflation adjustment factor for such
calendar year determined under section
43(b)(3)(B) for such calendar year, deter-
mined by substituting “2025” for “1990.”
Section 45Q(b)(1)(B) provides that the
applicable dollar amount determined un-
der section 45Q(b)(1)(A) is rounded to the
nearest cent.
Section 45Q(b)(2) provides a method
to compute the amount of qualified car-
bon oxide captured at a qualified facility
that was placed in service before February
9, 2018, and for which additional carbon
capture equipment is placed in service on
or after February 9, 2018. For purposes
of section 45Q(a)(1)(A) and (2)(A), the
amount of qualified carbon oxide that is
captured by the taxpayer is equal to the
lesser of (i) the total amount of qualified
carbon oxide captured at such facility for
the taxable year, or (ii) the total amount
of the carbon dioxide capture capacity of
the carbon capture equipment in service at
such facility on February 8, 2018 (the day
before the date of enactment of the BBA).
For purposes of section 45Q(a)(3)(A) and
(4)(A), the amount of qualified carbon ox-
ide captured by the taxpayer is an amount
(not less than zero) equal to the excess of
(i) the total amount of qualified carbon ox-
ide captured at such facility for the taxable
year, over (ii) the total amount of the car-
bon dioxide capture capacity of the carbon
capture equipment in service at such facil-
ity on February 8, 2018. These proposed
regulations explain the difference between
a physical modification or equipment ad-
dition that results in an increase in the car-
bon dioxide capture capacity of existing
carbon capture equipment, which will be
treated as newly placed in service, and a
mere increase in the amount of carbon di-
oxide captured by existing carbon capture
equipment, which will not be treated as
newly placed in service.
Pursuant to section 45Q(b)(3), a tax-
payer may elect to have the dollar amounts
applicable under section 45Q(a)(1) or (2)
apply in lieu of the dollar amounts appli-
cable under section 45Q(a)(3) or (4) for
each metric ton of qualified carbon oxide
which is captured by the taxpayer using
carbon capture equipment which is origi-
nally placed in service at a qualified facili-
ty on or after February 9, 2018. These pro-
posed regulations provide that the election
will apply to all metric tons of qualified
carbon oxide captured by the taxpayer at
the qualified facility for the full 12-year
credit period.
Section 45Q(f)(6)(A) provides that for
any taxable year in which an applicable fa-
cility captures not less than 500,000 metric
tons of qualified carbon oxide, the person
described in section 45Q(f)(3)(A)(ii) may
elect to have such applicable facility, and
any carbon capture equipment placed in
service at such applicable facility, deemed
as having been placed in service on Febru-
ary 9, 2018. The term “applicable facility”
means a qualified facility (i) which was
placed in service before February 9, 2018,
and (ii) for which no taxpayer claimed a
section 45Q credit for any taxable year
ending before February 9, 2018.
Section 45Q(f)(7) provides that in the
case of any taxable year beginning in a
calendar year after 2009, there is substi-
tuted for each dollar amount contained in
section 45Q(a)(1) and (2) an amount equal
to the product of (i) such dollar amount,
multiplied by (ii) the inflation adjustment
factor for such calendar year determined
under section 43(b)(3)(B) for such cal-
endar year, determined by substituting
“2008” for “1990.”
Section 45Q(g) provides that in the
case of any carbon capture equipment
placed in service before February 9, 2018,
the section 45Q credit applies with respect
to qualified carbon oxide captured using
such equipment before the end of the
calendar year in which the Secretary, in
consultation with the Administrator of the
Environmental Protection Agency (EPA),
certifies that a total of 75,000,000 metric

Bulletin No. 2020–30 157 July 20, 2020
tons of qualified carbon oxide have been
taken into account in accordance with
former section 45Q(a) (as in effect before
February 9, 2018) and sections 45Q(a)(1)
and (2).
These proposed regulations reflect
the statutory provisions relating to credit
amounts.
b. Contractually Ensuring Capture and
Disposal, Injection, or Utilization of
Qualified Carbon Oxide
Section 45Q(f)(3)(A)(i) provides that
in the case of qualified carbon oxide cap-
tured using carbon capture equipment
which is originally placed in service at a
qualified facility before February 9, 2018,
the section 45Q credit is attributable to
the person that captures and physically or
contractually ensures the disposal through
secure geological storage (referred to as
disposal), use for tertiary injection and
disposal through secure geological storage
(referred to as injection) or utilization in a
manner consistent with section 45Q(f)(5)
(referred to as utilization).
Section 45Q(f)(3)(A)(ii) provides that
in the case of qualified carbon oxide cap-
tured using carbon capture equipment
which is originally placed in service at a
qualified facility on or after February 9,
2018, the section 45Q credit is attributable
to the person that owns the carbon capture
equipment and physically or contractually
ensures the capture and disposal, injec-
tion, or utilization of such qualified car-
bon oxide.
Commenters requested that the Trea-
sury Department and the IRS clarify
which contract provisions are necessary
to contractually ensure the capture and
disposal, injection, or utilization of qual-
ified carbon oxide. Several commenters
requested broad guidance on commercial-
ly reasonable terms rather than specifying
exact language. One commenter requested
guidance regarding the assurance of cap-
ture, remedies, guarantees, and the pre-
vention of leakage.
In response, the proposed regulations
provide a framework for the types of
contracts, terms, and reporting require-
ments that will demonstrate the contrac-
tual assurance of the capture and dispos-
al, injection, or utilization of qualified
carbon oxide. The proposed regulations
provide that a taxpayer may enter into
multiple contracts with multiple parties
for the disposal, injection, or utilization
of qualified carbon oxide. For example,
a taxpayer that captures qualified carbon
oxide may contract with one party to dis-
pose of a portion of its captured qualified
carbon oxide in a deep saline formation,
with another party to use another portion
of its captured qualified carbon oxide as a
tertiary injectant in multiple enhanced oil
recovery (EOR) sites, and with several
parties to utilize the remaining portion of
its captured qualified carbon oxide. The
existence of each contract and the parties
involved must be reported to the IRS on
an annual basis on Form 8933, Carbon
Oxide Sequestration Credit (or succes-
sor forms, or pursuant to instructions and
other guidance). For contracts for the dis-
posal of carbon oxide or use as a tertiary
injectant in enhanced oil or natural gas
recovery, the following information must
be included: identifying information
(name of operator, field, unit and reser-
voir), the location (county and state) and
the identification number assigned to the
facility by the EPA’s electronic Green-
house Gas Reporting Tool (e-GGRT ID
number). The e-GGRT ID number will
allow the IRS to reconcile information
with data reported to the EPA’s Green-
house Gas Reporting Program (GHGRP)
and otherwise receive technical assis-
tance from the EPA.
The proposed regulations require tax-
payers to contractually ensure the dispos-
al, injection, or utilization of qualified
carbon oxide in a binding written contract
that includes commercially reasonable
terms that provides for enforcement. The
proposed regulations provide that taxpay-
ers may include information regarding
how much carbon oxide the parties agree
to dispose of, inject, or utilize in their con-
tracts. Contracts may also include various
other specific provisions relating to en-
forcement, such as long-term liability pro-
visions, indemnity provisions, or penalties
for breach of contract or liquidated damag-
es. While the proposed regulations require
that the contract include a mechanism for
enforcement, no specific enforcement-re-
lated provision, or other particular kind of
enforcement provision, are mandated by
these proposed regulations. This is consis-
tent with allowing contracting parties to
tailor their agreements to a wide variety of
business needs and circumstances.
Under the proposed regulations, a
taxpayer does not elect to allow all or
a portion of the section 45Q credit to
any of the contracting parties merely by
contracting with that party to ensure the
disposal, injection, or utilization of qual-
ified carbon oxide. Any election to allow
all or a portion of the credit to another
taxpayer must be made separately in the
manner provided in these proposed reg-
ulations.
c. Election to Allow the Credit to Another
Taxpayer
Section 45Q(f)(3)(B) provides that a
person that is entitled to claim the credit
under section 45Q(f)(3)(A)(i) or section
45Q(f)(3)(A)(ii) may elect to allow the
person that disposes of the qualified car-
bon oxide, utilizes the qualified carbon
oxide, or uses the qualified carbon oxide
as a tertiary injectant to claim the credit
(section 45Q(f)(3)(B) election).
Commenters requested guidance re-
garding the section 45Q(f)(3)(B) elec-
tion. Commenters generally sought to
maximize the ability of the taxpayer to
whom the section 45Q credit is attribut-
able (electing taxpayer) to make the sec-
tion 45Q credit allowable to one or more
other taxpayers (credit claimants) pursu-
ant to the section 45Q(f)(3)(B) election.
Commenters also generally requested that
guidance provide that section 45Q(f)(3)
(B) elections may be made on an annu-
al basis. One commenter requested that
guidance provide for a broader range of
permissible credit claimants, including an
owner, operator, service company, suppli-
er, partner, or tax equity or other project
finance participant.
One commenter suggested that the sec-
tion 45Q(f)(3)(B) election should be made
in the taxable year that the qualified carbon
oxide is disposed of, utilized, or used as a
tertiary injectant. The commenter recom-
mended that the election procedures fol-
low the procedures for making a section
338(h)(10) election. Further, commenters
suggested that Forms 8933 should be filed
by all parties to the section 45Q(f)(3)(B)
election with their respective tax returns
for the taxable year in which the qualify-
ing activity is completed.

July 20, 2020 158 Bulletin No. 2020–30
Other commenters suggested that a
taxpayer should make a section 45Q(f)(3)
(B) election for a taxable year by attaching
a statement to a timely filed income tax re-
turn (including extensions) for the taxable
year. Further, commenters suggested that
a taxpayer should be permitted to make
a section 45Q(f)(3)(B) election for a por-
tion of the section 45Q credit. The portion
allowed to a credit claimant would be
specified in the electing taxpayer’s annual
election as a percentage of the total credit
claimed.
One commenter noted that when a tax-
payer makes a section 45Q(f)(3)(B) elec-
tion, the electing taxpayer should no lon-
ger claim the section 45Q credit subject to
the election. To ensure compliance with
this rule, the commenter suggested that
the guidance and the relevant tax forms
(i.e., Form 8933) require coordination be-
tween the electing taxpayer and the credit
claimant. For example, the credit claimant
could be required to include a copy of the
electing taxpayer’s section 45Q(f)(3)(B)
election to allow the credit.
In response to these comments, the
proposed regulations provide guidance re-
garding who may make a section 45Q(f)
(3)(B) election and the time and manner
for making a section 45Q(f)(3)(B) elec-
tion. The proposed regulations also pro-
vide that section 45Q(f)(3)(B) elections
must be made on an annual basis no later
than the time prescribed by law (including
extensions) for filing the Federal income
tax return or Form 1065 and may not be
made on an amended Federal income tax
return. However, a section 45Q(f)(3)(B)
election may be made on an amended Fed-
eral income tax return, an amended Form
1065 or an administrative adjustment
request under section 6227 of the Code
(AAR), for any taxable year ending after
February 9, 2018, but not for taxable years
beginning after June 2, 2020.
The proposed regulations also set forth
information to be provided as part of a sec-
tion 45Q(f)(3)(B) election, requiring both
an electing taxpayer and a credit claim-
ant to include a Form 8933 (or successor
forms, or pursuant to instructions and oth-
er guidance) with its timely filed Feder-
al income tax return or Form 1065, U.S.
Return of Partnership Income (including
extensions) as applicable. An electing
taxpayer must provide each credit claim-
ant with a copy of the electing taxpayer’s
Form 8933, and each credit claimant must
attach that copy of the electing taxpayer’s
Form 8933 to its own Form 8933.
The proposed regulations further pro-
vide that section 45Q(f)(3)(B) elections
may be made for all or a portion of the
available section 45Q credit and may be
made for a single or multiple credit claim-
ants. If an electing taxpayer elects to allow
multiple credit claimants to claim section
45Q credits, the proposed regulations pro-
vide that the maximum amount of sec-
tion 45Q credits allowable to each credit
claimant is proportional to the amount of
qualified carbon oxide disposed of, uti-
lized, or used as a tertiary injectant by the
credit claimant. In addition, as provided
in Revenue Procedure 2020-23, 2020-
18 I.R.B.1 (April 27, 2020), the excep-
tion applies regarding the time to file an
amended return by a partnership subject
to the centralized partnership audit regime
enacted as part of the BBA (BBA partner-
ship) for the 2018 and 2019 taxable years.
The amended Federal income tax return or
the amended Form 1065 must be filed, in
no event, later than the applicable period
of limitations on assessment for the tax-
able year for which the amended Federal
income tax return or Form 1065 is being
filed. In the case of a BBA partnership
that chooses not to file an amended Form
1065 as permitted under Revenue Proce-
dure 2020-23, the BBA partnership may
make a late election by filing an AAR
on or before October 15, 2021, but in no
event, later than the applicable period of
limitations on making adjustments under
section 6235 for the reviewed year, as de-
fined in §301.6241-1(a)(8) of the Proce-
dure and Administration Regulations (26
CFR Part 301).
d. Amended Returns
Taxpayers may claim section 45Q
credits on an amended Federal income
tax return, an amended Form 1065, or
an AAR, as applicable, for taxable years
beginning on or after February 9, 2018,
provided that the requirements described
in the proposed regulations are satisfied.
In addition, as provided in Revenue Pro-
cedure 2020-23, the exception applies
regarding the time to file an amended re-
turn by a BBA partnership for the 2018
and 2019 taxable years. The amended
Federal income tax return or the amend-
ed Form 1065 must be filed, in no event,
later than the applicable period of lim-
itations on assessment for the taxable
year for which the amended Federal in-
come tax return or Form 1065 is being
filed. In the case of a BBA partnership
that chooses not to file an amended Form
1065 as permitted under Revenue Proce-
dure 2020-23, the BBA partnership may
make a late election by filing an AAR
on or before October 15, 2021, but in no
event, later than the applicable period of
limitations on making adjustments under
section 6235 for the reviewed year, as
defined in §301.6241-1(a)(8) of the Pro-
cedure and Administration Regulations
(26 CFR Part 301). However, section
45Q(f)(3)(B) elections may not be made
on amended returns for taxable years be-
ginning after the date of issuance of these
proposed regulations.
2. Definitions
a. Qualified Carbon Oxide
Section 45Q(c) provides that “quali-
fied carbon oxide” means (A) any carbon
dioxide which (i) is captured from an in-
dustrial source by carbon capture equip-
ment which is originally placed in service
before February 9, 2018; (ii) would oth-
erwise be released into the atmosphere as
industrial emission of greenhouse gas or
lead to such release; and (iii) is measured
at the source of capture and verified at the
point of disposal, injection, or utilization;
(B) any carbon dioxide or other carbon
oxide which (i) is captured from an indus-
trial source by carbon capture equipment
which is originally placed in service on or
after February 9, 2018; (ii) would other-
wise be released into the atmosphere as
industrial emission of greenhouse gas or
lead to such release; and (iii) is measured
at the source of capture and verified at the
point of disposal, injection, or utilization;
or (C) in the case of a direct air capture fa-
cility, any carbon dioxide which (i) is cap-
tured directly from ambient air; and (ii)
is measured at the source of capture and
verified at the point of disposal, injection,
or utilization.
While “qualified carbon oxide” in-
cludes the initial deposit of captured

Bulletin No. 2020–30 159 July 20, 2020
carbon oxide used as a tertiary injectant,
section 45Q(c)(2) provides that the term
does not include carbon oxide that is re-
captured, recycled, and re-injected as part
of the qualified enhanced oil or natural gas
recovery process. Additionally, section
45Q(f)(1) provides that the section 45Q
credit apples only with respect to qualified
carbon oxide the capture and disposal,
injection, or utilization of which is with-
in the United States (within the meaning
of section 638(1)), or a possession of the
United States (within the meaning of sec-
tion 638(2)).
Commenters suggested generally that
the statutory definition of qualified car-
bon oxide is sufficient, and did not seek
additional clarification. The Treasury De-
partment and the IRS agree that the stat-
utory definition of qualified carbon oxide
is clear due to the broad acceptance and
use of the term by industry participants,
environmental groups, and stakeholders.
Therefore, the proposed regulations gen-
erally conform to the statutory definition
of qualified carbon oxide, including the
provision that only qualified carbon oxide
captured and disposed of, injected, or uti-
lized within the United States or a posses-
sion of the United States is taken into ac-
count. Therefore, the proposed regulations
generally conform to the statutory defini-
tion of qualified carbon oxide, including
the provision that only qualified carbon
oxide captured and disposed of, injected,
or utilized within the United States or a
possession of the United States is taken
into account.
b. Carbon Capture Equipment
Section 45Q does not define carbon
capture equipment. One commenter sug-
gested that carbon capture equipment be
broadly defined as, “any system that but
for its presence and application, the car-
bon oxides captured at a qualifying indus-
trial facility and on which a section 45Q
credit is earned would have been vented
into the atmosphere.” Another comment-
er suggested that the definition allow
for maximum flexibility to encompass a
complete configuration of equipment in-
cluding separate units, processing units,
processing plants, pipe, buildings, pumps,
compressors, meters, facilities, motors,
fixtures, materials, and machinery, and all
other improvements used for the purpose
of: (1) separating and/or capturing carbon
dioxide that would otherwise be released
into the atmosphere from a qualifying
facility; (2) compressing or otherwise in-
creasing the pressure of carbon dioxide; or
(3) transporting, disposing, injecting, and/
or utilizing qualified carbon oxide.
Finally, some commenters suggested
that the definition of carbon capture equip-
ment should be limited to the equipment
that functions to capture the carbon oxides
from any industrial source. The comment-
ers explained that once the carbon oxides
are captured, equipment having a separate
function such as compression, liquefac-
tion, transportation, or pumping, should
not be included in the definition of carbon
capture equipment.
The Treasury Department and the IRS
agree that carbon capture equipment gen-
erally should be defined in terms of its
functionality. The proposed regulations
provide that in general, carbon capture
equipment includes all components of
property that are used to capture or pro-
cess carbon oxide until the carbon oxide
is transported for disposal, injection, or
utilization. Further, the proposed regula-
tions list specific items that are included
in, or excluded from the definition of car-
bon capture equipment. Components of
property related to the function of captur-
ing carbon oxides, such as components
of property necessary to compress, treat,
process, liquefy, or pump carbon oxides,
are included within the definition of car-
bon capture equipment. Components of
property related to transporting carbon
oxides for disposal, injection, or utiliza-
tion are not included in the general defi-
nition.
c. Qualified Facility
Section 45Q(d) provides that “qualified
facility” means any industrial facility or
direct air capture facility, the construction
of which begins before January 1, 2024,
and (i) the construction of carbon capture
equipment begins before such date; or (ii)
the original planning and design for such
facility includes installation of carbon
capture equipment. In addition, a quali-
fied facility must capture: (i) in the case
of a facility which emits not more than
500,000 metric tons of carbon oxide into
the atmosphere during the taxable year,
not less than 25,000 metric tons of qual-
ified carbon oxide during the taxable year
which is utilized in a manner described in
section 45Q(f)(5) (Section 45Q(d)(2)(A)
Facility); (ii) in the case of an electricity
generating facility which is not a Section
45Q(d)(2)(A) Facility (Section 45Q(d)(2)
(B) Facility), not less than 500,000 metric
tons of qualified carbon oxide during the
taxable year; or (iii) in the case of a direct
air capture facility or any facility which
is not a Section 45Q(d)(2)(A) Facility or
a Section 45Q(d)(2)(B) Facility, not less
than 100,000 metric tons of qualified car-
bon oxide during the taxable year.
Some commenters requested that the
proposed regulations incorporate the
“80/20 Rule” set forth in Rev. Rul. 94-31,
1994-1 C.B. 16, which held that for sec-
tion 45 purposes a facility that contains
some used property would still qualify as
originally placed in service, provided the
fair market value of the used property is
not more than 20 percent of the facility’s
total value. Commenters requested the
inclusion of this rule because the section
45Q credit amounts depend on wheth-
er carbon capture equipment is placed in
service before February 9, 2018, or on or
after that date.
The proposed regulations adopt the
80/20 Rule and provide that a qualified
facility or carbon capture equipment may
qualify as originally placed in service even
though it contains some used components
of property, provided the fair market value
of the used components of property is not
more than 20 percent of the qualified fa-
cility or carbon capture equipment’s total
value (the cost of the new components of
property plus the value of the used com-
ponents of property). For purposes of
the 80/20 Rule, the cost of a new quali-
fied facility or carbon capture equipment
includes all properly capitalized costs of
the new qualified facility or carbon cap-
ture equipment. Solely for purposes of the
80/20 Rule, properly capitalized costs of
a new qualified facility or carbon capture
equipment may, at the option of the tax-
payer, include the cost of new equipment
for a pipeline owned and used exclusively
by that taxpayer to transport carbon oxides
captured from that taxpayer’s qualified fa-
cility that would otherwise be emitted into
the atmosphere.

July 20, 2020 160 Bulletin No. 2020–30
d. Industrial Facility
Section 45Q does not define the term
“industrial facility.” Commenters suggest-
ed that an “industrial facility” should be
defined as a facility that produces a car-
bon oxide stream from a fuel combustion
source, a manufacturing process, or a fu-
gitive carbon oxide-emission source that,
absent capture and disposal, injection, or
utilization, would otherwise be released
into the atmosphere. They also recom-
mended that the term not include a facil-
ity that produces carbon dioxide through
carbon dioxide production wells at natural
carbon dioxide-bearing formations. This
definition is consistent with the definition
of industrial facility provided in section
3.03 of Notice 2020-12. The proposed
regulations adopt this definition.
e. Direct Air Capture Facility
Section 45Q(e)(1) provides that the
term “direct air capture facility” means
any facility which uses carbon capture
equipment to capture carbon dioxide di-
rectly from the ambient air, except the
term does not include any facility which
captures carbon dioxide that is deliber-
ately released from naturally occurring
subsurface springs or using natural photo-
synthesis.
Generally, commenters did not request
that the definition of “direct air capture
facility” be clarified. One commenter
suggested that “direct air capture facility”
include certain algae. Although section
45Q(f)(5)(A)(i) provides that photosyn-
thesis or chemosynthesis is a permitted
type of utilization of qualified carbon ox-
ide, the statutory definition of a “direct
air capture facility” excludes any facility
that captures carbon dioxide using natural
photosynthesis. Therefore, the proposed
regulations do not adopt the commenter’s
suggestion.
3. Secure Geological Storage
Section 45Q(f)(2) provides that the
Secretary, in consultation with the Ad-
ministrator of the EPA, the Secretary of
Energy, and the Secretary of the Interior,
must establish regulations for determining
adequate security measures for the geo-
logical storage of qualified carbon oxide
under section 45Q(a) such that the quali-
fied carbon oxide does not escape into the
atmosphere. Such term includes storage
at deep saline formations, oil and gas res-
ervoirs, and unminable coal seams under
such conditions as the Secretary may de-
termine under such regulations.
Injection of carbon oxide into any un-
derground reservoir, onshore or offshore
under submerged lands within the terri-
torial jurisdiction of States, requires the
operator to comply with Underground In-
jection Control (UIC) program regulations
and to obtain the appropriate UIC well
permits. Under 40 CFR §146.5 (Classifi-
cation of injection wells) Class II may be
an appropriate UIC well permit for wells
which inject fluids (including carbon di-
oxide) brought to the surface in connec-
tion with conventional oil or natural gas
production and may be commingled with
waste waters from gas plants that are an
integral part of production operations, un-
less those fluids are classified as a hazard-
ous waste at the time of injection, and for
wells which inject fluids (including car-
bon oxides) for enhanced recovery of oil
or natural gas. Class VI is an appropriate
UIC well permit for wells that are not ex-
perimental in nature that are used for geo-
logic sequestration of carbon dioxide be-
neath the lowermost formation containing
an underground source of drinking water;
or, for wells used for geologic seques-
tration of carbon dioxide that have been
granted a waiver of the injection depth re-
quirements pursuant to requirements at 40
CFR §146.95; or, for wells used for geo-
logic sequestration of carbon dioxide that
have received an expansion to the areal
extent of an existing Class II enhanced oil
recovery or enhanced gas recovery aqui-
fer exemption pursuant to §§146.4 and
144.7(d) of 40 CFR.
Operators that inject carbon dioxide
underground are also subject to the EPA’s
GHGRP requirements set forth at 40 CFR
Part 98. Under 40 CFR Part 98 subpart RR
(Geologic Sequestration of Carbon Diox-
ide source category, referred to as sub-
part RR), certain facilities, including UIC
Class VI wells, are required to report basic
information on carbon dioxide received
for injection, develop and implement an
EPA-approved site-specific Monitoring,
Reporting, and Verification Plan (MRV
Plan), and report the amount of carbon
dioxide geologically sequestered using a
mass balance approach and annual mon-
itoring activities. Under 40 CFR Part 98
subpart UU (Injection of Carbon Dioxide
source category, referred to as subpart
UU), all other facilities that inject carbon
dioxide underground such as for EOR or
any other purpose, are required to report
basic information on carbon dioxide re-
ceived for injection. Facilities that con-
duct EOR are not required by 40 CFR Part
98 to report under subpart RR unless (1)
the owner or operator chooses to opt into
subpart RR or, (2) the facility holds a UIC
Class VI permit for the well or group of
wells used for EOR. Annual reports that
are submitted under 40 CFR Part 98 to the
EPA’s GHGRP undergo verification by
the EPA, and non-confidential data from
these reports are published on the EPA’s
website.
Commenters noted that Form 8933
defines “secure geological storage” for
purposes of section 45Q as requiring ap-
proval by the EPA of an MRV Plan. Thus,
meeting the Form 8933 conditions would
be achieved currently by receiving either
(i) a UIC Class VI permit plus an EPA-ap-
proved MRV Plan, which UIC Class VI
permit holders are already required to
have because they are subject to subpart
RR; or (ii) a UIC Class II permit plus an
EPA-approved MRV Plan. The Form 8933
requirement that UIC Class II permit hold-
ers receive an approved MRV Plan for pur-
poses of the section 45Q credit creates an
additional burden on such holders. Some
commenters expressed concern that being
required to opt into subpart RR may create
a misalignment with state mineral proper-
ty and natural resource conservation laws,
as well as accepted industry practices and
commercial arrangements. Therefore, the
commenters generally requested that the
Treasury Department and the IRS provide
alternatives to opting into subpart RR for
demonstrating secure geological storage
for EOR projects.
Many commenters suggested that a
standard adopted by the International
Organization for Standardization (ISO)
and endorsed by the American National
Standards Institute (ANSI), CSA/ANSI
ISO 27916:19, “Carbon Dioxide Capture,
Transportation and Geological Storage –
Carbon Dioxide Storage Using Enhanced
Oil Recovery (CO
2
-EOR),” is a viable

Bulletin No. 2020–30 161 July 20, 2020
alternative to subpart RR for establishing
secure geological storage for the use of
qualified carbon oxide for EOR.
The CSA/ANSI ISO 27916:19 standard
was developed for the purpose of quanti-
fying and documenting the total carbon
dioxide that is stored in association with
EOR. In general, reporting under CSA/
ANSI ISO 27916:19 uses mass balance
accounting, has established reporting and
documentation requirements, and includes
requirements for documenting a monitor-
ing program and a containment assurance
plan.
Some of the commenters advocating
for the application of the CSA/ANSI ISO
27916:19 standard emphasized the im-
portance and need for public acceptance
and input, transparent public filings, cred-
ible third-party audits and certifications,
and government oversight and enforce-
ment. For example, some commenters
suggested that the proposed regulations
require that all relevant documentation
of the amount of qualified carbon oxide
stored for purposes of the section 45Q
credit be retained and made available
for public review and the total quantity
of qualified carbon oxide stored for long-
term containment be reported annually.
The Treasury Department and the IRS
appreciate the importance of shared and
open information in this context and en-
courage transparency. However, there is
no statutory requirement in section 45Q
for taxpayers, Federal agencies, or indus-
try groups to pubicly display this infor-
mation or otherwise make it available. In
addition, the IRS is itself limited in what
it can disclose because of the rules pro-
hibiting the public disclosure of taxpayer
information under section 6103.
Some commenters also requested that
the Treasury Department and the IRS rec-
ognize the standards for secure geological
storage required by government entities
with regulatory primacy, and also recom-
mended that states be allowed to certify
the secure geological storage of qualified
carbon oxide. The commenters noted that
the EPA has approved primary enforce-
ment authority (primacy) for UIC Class
II wells for more than half the states. Pri-
macy permits a state, tribe, or territory to
implement and oversee its own EPA ap-
proved program. One commenter request-
ed that the IRS clarify that a valid UIC
Class VI permit issued under the authority
of the EPA includes permits issued by a
state that has received final approval from
the EPA of its primacy application under
section 1422 of the Safe Water Drinking
Act to implement a Class VI UIC Pro-
gram. The commenter also suggested that
use of an accounting methodology consis-
tent with the mass balance equation under
subpart RR be adequate to establish se-
cure geological storage.
The Treasury Department and the IRS,
in consultation with the EPA, DOE, and
the Department of Interior (Interior De-
partment), agree that providing CSA/
ANSI ISO 27916:19 as an alternative
for UIC Class II wells is a viable quan-
tification methodology that is appropri-
ate for these purposes. Both subpart RR
and CSA/ANSI ISO 27916:19 require an
assessment and monitoring of potential
leakage pathways; quantification of in-
puts, losses and storage through a mass
balance approach; and documentation of
steps and approaches. Operators of UIC
Class II wells that follow the CSA/ANSI
ISO 27916:19 standard could elect to re-
port to the EPA’s GHGRP under subpart
RR but would not be required to do so.
Rather, they could continue to report to
the EPA under subpart UU.
The Treasury Department and the IRS,
in consultation with the EPA, DOE, and
the Interior Department, disagree with
suggestions to allow the reporting rules
promulgated by states as an alternative to
subpart RR or CSA/ANSI ISO 27916:19.
Reporting rules among states are not uni-
form and states may have different report-
ing requirements and different governing
bodies to whom carbon dioxide injection
projects are required to report. Adopting
such rules would not promote uniformi-
ty, and would increase the administrative
burden on the IRS significantly.
Consequently, the proposed regulations
allow the CSA/ANSI ISO 27916:19 stan-
dard as an alternative to subpart RR for
UIC Class II wells using qualified carbon
oxide for EOR, but do not allow standards
set by states as an alternative to subpart
RR. In addition, the proposed regulations
do not provide for an alternative to subpart
RR reporting for UIC Class VI wells be-
cause all UIC Class VI wells are already
subject to subpart RR reporting require-
ments. A taxpayer that reported volumes
of carbon oxide to the EPA pursuant to
subpart RR may self-certify the volume of
carbon oxide claimed for purposes of sec-
tion 45Q. Alternatively, if a taxpayer de-
termined volumes pursuant to CSA/ANSI
ISO 27916:19, the taxpayer may prepare
documentation as outlined in CSA/ANSI
27916:2019 internally, but such docu-
mentation must be provided to a qualified
independent engineer or geologist, who
then must certify that the documentation
provided, including the mass balance cal-
culations as well as information regarding
monitoring and containment assurance, is
accurate and complete.
4. Utilization of Qualified Carbon Oxide
Section 45Q(f)(5)(A) provides that
“utilization of qualified carbon oxide”
means (i) the fixation of such qualified car-
bon oxide through photosynthesis or che-
mosynthesis, such as through the growing
of algae or bacteria; (ii) the chemical con-
version of such qualified carbon oxide to a
material or chemical compound in which
such qualified carbon oxide is securely
stored; or (iii) the use of such qualified
carbon oxide for any other purpose for
which a commercial market exists (with
the exception of use as a tertiary injectant
in a qualified enhanced oil or natural gas
recovery project), as determined by the
Secretary.
Section 45Q(f)(5)(B) provides a meth-
odology to determine the amount of quali-
fied carbon oxide utilized by the taxpayer.
Such amount is equal to the metric tons of
qualified carbon oxide which the taxpayer
demonstrates, based upon an analysis of
lifecycle greenhouse gas emissions and
subject to such requirements as the Secre-
tary, in consultation with the Secretary of
Energy and the Administrator of the EPA,
determines appropriate, were (i) captured
and permanently isolated from the atmo-
sphere, or (ii) displaced from being emit-
ted into the atmosphere, through use of a
process described in section 45Q(f)(5)(A).
The term “lifecycle greenhouse gas emis-
sions” has the same meaning given such
term under subparagraph (H) of section
211(o)(1) of the Clean Air Act (42 U.S.C.
7545(o)(1)(H)), as in effect on February 9,
2018, except that “product” is substituted
for “fuel” each place it appears in such
subparagraph.

July 20, 2020 162 Bulletin No. 2020–30
Commenters generally sought guid-
ance about the methodologies required to
prepare an acceptable life cycle analysis
(LCA) that demonstrates the amount of
qualified carbon oxide utilized, as well as
the boundaries required for the LCA.
One commenter requested that guid-
ance establish clear guidelines for the
preparation of an LCA by applicants to
demonstrate the net reduction or avoid-
ance of carbon dioxide achieved through
its utilization by the taxpayer. Because
LCA requires selection of comparative
data, the commenter recommended that
the LCA undergo a review by a third party,
determined by the IRS, to assess the rea-
sonableness of the assumptions, factors
and calculations used by the applicant.
Other commenters suggested using
the Greenhouse Gases, Regulated Emis-
sions, and Energy Use in Transportation
(GREET) model, or an adaptation of it
adopted by the California Air Resources
Board, to perform LCA of transportation
fuels, and further suggested using both a
basic method and a safe harbor method.
The GREET model is a tool that examines
the life-cycle impacts of vehicle technolo-
gies, fuels, products, and energy systems.
It provides a transparent platform through
which energy and vehicle producers, re-
searchers, and regulators can evaluate
energy and environmental effects of vehi-
cle technologies and energy and product
systems. For any given energy and vehi-
cle system, GREET can calculate total
energy consumption (non-renewable and
renewable), emissions of air pollutants,
emissions of greenhouse gases, and water
consumption.
One commenter suggested that the
LCA, as reviewed by the relevant govern-
mental agency, should determine whether
any release of embodied qualified carbon
oxide is possible for a specific utiliza-
tion project. If so, the commenter recom-
mended that recapture be addressed in the
LCA. The commenter requested guidance
regarding the types of LCA models that
are appropriate, and recommended the
GREET model.
Another commenter suggested that the
IRS should not adopt a specific method-
ology or approach to calculating lifecy-
cle emissions. Instead, the commenter
recommended that guidance make clear
that models that are acceptable to the EPA
will also be acceptable for purposes of
section 45Q. The commenter suggested
that the LCA model for section 45Q pur-
poses should be one that is recognized by
the EPA based on its use in the Renew-
able Fuel Standard or other program ad-
ministered by the EPA. The commenter
further recommended that if the capture
and utilization of carbon oxides also gen-
erates other greenhouse gas detriments,
such as an increase in emissions over the
base case, those greenhouse gases caused
by the utilization should be adjusted to
account for the relative global warming
potential. Similarly, if the capture and
utilization of carbon oxides reduce green-
house gas emissions over the base case,
the commenter argued that those benefits
should also be credited.
One commenter sought guidance on
the boundaries for LCA to determine dis-
placement of carbon dioxide and recom-
mended that lifecycle emissions include
the entirety of the lifecycle.
Several commenters expressed the
view that an MRV Plan or any accredit-
ed LCA performed by a qualified firm as
determined by the IRS could be suitable
for establishing boundaries for lifecycle
emissions for qualified carbon oxide uti-
lization. Further, commenters suggested
that there should be contractual proof to
track the supply chain and ensure that the
MRV Plan is followed according to the an-
nual LCA.
Some commenters suggested that guid-
ance require EOR operators to provide a
full lifecycle greenhouse gas emissions
analysis that, like the requirements for
utilization, includes all stages of product
and feedstock production and distribution,
from feedstock generation or extraction
through the distribution and delivery and
use of the finished product to the ultimate
consumer. The commenters requested that
the IRS make public all lifecycle emis-
sions calculations.
One commenter made the following
suggestions. First, taxpayers should use
an independent consulting firm or other
similar independent entity to undertake
the LCA. Second, taxpayers should in-
sure that an LCA model is realistic and
has been used widely by the LCA indus-
try. Third, an LCA must be commercial-
ly available to anyone and must be able
to be examined in any audit by the IRS.
Fourth, taxpayers should use an LCA that
compares a base case of making the prod-
uct produced by utilization without carbon
capture to the modeled utilization case us-
ing qualified carbon oxide to determine
what greenhouse gases were displaced
from being emitted into the atmosphere.
Finally, taxpayers must use an LCA which
models all “greenhouse gases” as defined
in the Clean Air Act in determining the net
impact of such greenhouse gases gener-
ated or reduced in utilization of qualified
carbon oxide.
One commenter suggested that the IRS
should provide a safe harbor for taxpayers
that retain a third-party firm to undertake
the LCA. However, the commenter stated
that while a safe harbor would be helpful,
third-party verification should not be man-
datory, as many taxpayers may have suf-
ficient engineering expertise in-house and
some smaller projects may not support the
extra cost of third-party verification.
In response to the commenters, the pro-
posed regulations conform the definition
of utilization to the statutory definition.
The Treasury Department and the IRS, in
consultation with the EPA and the DOE,
concluded that the LCA must be in writing
and either performed or verified by a pro-
fessionally-licensed third party that uses
generally-accepted standard practices of
quantifying the greenhouse gas emissions
of a product or process and comparing
that impact to a baseline. In particular, the
analysis must contain documentation con-
sistent with the International Organization
for Standardization (ISO) 14044:2006,
“Environmental management — Life
cycle assessment — Requirements and
Guidelines,” as well as a statement docu-
menting the qualifications of the third par-
ty. Although the section 45Q credit is only
available with respect to qualified carbon
oxides, all greenhouse gas emissions are
taken into account under this analysis. The
proposed regulations require a taxpayer to
submit an LCA report to the IRS and the
DOE. The LCA will be subject to a tech-
nical review by the DOE, and the IRS, in
consultation with the DOE and the EPA,
will determine whether to approve the
LCA. The Treasury Department and the
IRS request comments on how to achieve
consistency in boundaries and baselines
so that similarly situated taxpayers will
be treated consistently. The Treasury De-

Bulletin No. 2020–30 163 July 20, 2020
partment and the IRS are willing to con-
sider issuing guidance on particular fact
patterns.
The proposed regulations do not define
commercial markets or provide for Stan-
dards of Lifecycle Analysis. The Treasury
Department and the IRS continue to study
these issues and request comments.
5. Credit Recapture
Section 45Q(f)(4) directs the Secretary
to provide regulations for recapturing the
benefit of any section 45Q credit allow-
able with respect to any qualified carbon
oxide which ceases to be captured, dis-
posed of, or used as a tertiary injectant in
a manner consistent with the requirements
of section 45Q.
Commenters sought guidance about
the method for measuring the amount of
leaked qualified carbon oxide subject to
recapture (recapture amount), the method
for calculating recapture, and the open pe-
riod during which a recapture event may
occur (recapture period).
All of these issues require a definition
of the recapture period. The proposed reg-
ulations provide that the recapture period
begins on the date of the first injection
of qualified carbon oxide for disposal in
secure geological storage or use as a ter-
tiary injectant and ends the earlier of five
years after the last taxable year in which
the taxpayer claimed a section 45Q credit
or the date monitoring ends under subpart
RR requirements or the CSA/ANSI ISO
27916:19 standard.
For clarity we will describe two
sub-portions of the recapture period,
the “post-credit-claiming period” and
the “lookback period”. The “post-cred-
it-claiming period” is the period after
the end of the twelve year credit period
during which a leak can result in recap-
ture, whereas the “lookback period” is
the portion of the recapture period during
which the IRS can look back after a leak-
age event to recapture credits. Most com-
menters supported a lookback period of
three to five years.
Commenters generally suggested that
if a recapture event occurs with respect to
storage of qualified carbon oxide, then the
taxpayer must add the recapture amount to
the amount of tax due in the taxable year
in which the recapture event occurs, as
opposed to attributing the leak to past tax
years and amending those returns.
Commenters also suggested that a re-
capture event should occur when qual-
ified carbon oxide, for which a section
45Q credit has been allowed, ceases to be
stored in secure geological storage if the
amount of leakage of qualified carbon ox-
ide in a taxable year exceeds the amount
of qualified carbon oxide stored in that
same taxable year. In other words, they
suggested that a leak would first offset the
immediate tax year’s claimed credits and
then be an addition to tax, as opposed to
auditing and amending past tax returns.
One commenter stated that the standard
for measuring recapture of the section
45Q credit should be the mass balance cal-
culations that are used for determining the
amount of qualified carbon oxide stored in
secure geological storage. The commenter
noted that these mass balance calculations
effectively establish a last-in/first-out
(LIFO) accounting method that assumes
current year releases offset current year
injections for the qualified carbon oxide
that is in secure geological storage.
Several commenters requested a safe
harbor for recapture, providing that recap-
ture will not apply so long as the injection
operator is operating in compliance with
any standards set by the Treasury De-
partment and the IRS for secure geolog-
ical storage of the qualified carbon oxide.
These commenters asserted that if the in-
jection operator is in compliance with the
secure geological storage standards at the
time of a release, any release or leakage
of the qualified carbon oxide would be
offset by current year injections of qual-
ified carbon oxide. If the injection oper-
ator is not operating in compliance with
the standards for secure geological storage
at the time of the release, the commenters
recommended that any recapture be calcu-
lated on a LIFO basis against previously
taken section 45Q credits when the injec-
tion operator was in compliance with the
secure geological storage standards.
The proposed regulations do not pro-
vide a recapture safe harbor, but do limit
the recapture period similar to the recap-
ture provisions for investment credit prop-
erty under section 50(a)(1). Specifically,
the proposed regulations provide that any
recapture amount will be accounted for
in the taxable year that it is identified and
reported. If, during the recapture period,
a taxpayer, operator, or regulatory agen-
cy determines that qualified carbon oxide
has leaked to the atmosphere, the taxpayer
will have a recapture amount if the leaked
amount of qualified carbon oxide exceeds
the amount of qualified carbon dioxide
disposed of in secure geological storage
or used as a tertiary injectant in that tax-
able year. That excess amount of leaked
qualified carbon oxide will be recaptured
at a credit rate calculated on a LIFO basis
(that is, the excess leaked qualified carbon
oxide will be deemed attributable first to
the first preceding year, then to second
preceding year, and then up to the fifth
preceding year) to simplify the calculation
of the recapture amount.
The taxpayer must add the amount of
the recaptured section 45Q tax credit to
the amount of tax due in the taxable year
in which the recapture event occurs. Con-
sistent with this five-year lookback peri-
od, the proposed regulations provide that
the post-credit-claiming period ends the
earlier of (i) five years after the last tax-
able year in which the taxpayer claimed
a section 45Q credit or (ii) the date moni-
toring ends under the requirements of the
subpart RR standard or the CSA/ANSI
ISO 27916:19 standard.
The proposed regulations also provide
that in the event of a recapture event with
respect to a secure geological storage lo-
cation in which the stored qualified carbon
oxide had been captured from more than
one unit of carbon capture equipment that
was not under common ownership, the re-
capture amount must be allocated among
the taxpayers that own the multiple units
of carbon capture equipment pro rata on
the basis of the amount of qualified carbon
oxide captured from each of the multiple
units of carbon capture equipment.
Similarly, the proposed regulations
provide that in the event of a recapture
event where the leaked amount of quali-
fied carbon oxide is deemed attributable
to qualified carbon oxide with respect to
which multiple taxpayers claimed section
45Q credit amounts, the recapture amount
is allocated on a pro rata basis among the
taxpayers that claimed the section 45Q
credits.
The proposed regulations provide a
limited exception to recapture in the event
of a leakage of qualified carbon oxide re-

July 20, 2020 164 Bulletin No. 2020–30
sulting from actions not related to the se-
lection, operation, or maintenance of the
storage facility, such as volcanic activity
or a terrorist attack. Finally, the proposed
regulations provide that if qualified car-
bon oxide is deliberately removed from
a secure storage site, a recapture event
occurs in the year in which the qualified
carbon oxide is removed from its original
storage.
As noted in section 4.08 of Revenue
Procedure 2020-12, a taxpayer may obtain
third-party recapture insurance to protect
against recapture.
The Treasury Department and the IRS
request comments on how to apply the re-
capture provisions to section 45Q credits
that are carried forward to future taxable
years due to insuffificent income tax lia-
bility in the current taxable year.
Effect on Other Documents
Sections 1 through 5 of Notice 2009-
83, 2009-2 C.B. 588, as modified by No-
tice 2011-25, 2011-1 C.B. 604, are obso-
leted. The remaining sections of Notice
2009-83 provide reporting and record-
keeping requirements associated with
the limitation on credits available under
former section 45Q(a) (as in effect before
February 9, 2018) and sections 45Q(a)(1)
and (2). After the end of the calendar year
in which the Secretary, in consultation
with the Administrator of the EPA, certi-
fies that a total of 75,000,000 metric tons
of qualified carbon oxide have been taken
into account under former section 45Q(a)
(as in effect before February 9, 2018) and
sections 45Q(a)(1) and (2), the remaining
sections of Notice 2009-83 will be obso-
leted.
Proposed Effective/Applicability Date
The regulations are proposed to apply
to taxable years beginning on or after the
date the Treasury decision adopting these
regulations as final regulations is pub-
lished in the Federal Register. However,
taxpayers may choose to apply the final
regulations for taxable years beginning on
or after February 9, 2018, and before the
date the Treasury decision adopting these
regulations as final regulations is pub-
lished in the Federal Register. See sec-
tion 7805(b)(7). Alternatively, taxpayers
may rely on these proposed regulations
for taxable years beginning on or after
February 9, 2018, and before the date the
Treasury decision adopting these regula-
tions as final regulations is published in
the Federal Register, provided the tax-
payers follow the proposed regulations in
their entirety and in a consistent manner.
Statement of Availability for IRS
Documents
For copies of recently issued Revenue
Procedures, Revenue Rulings, Notices,
and other guidance published in the Inter-
nal Revenue Bulletin, please visit the IRS
website at http://www.irs.gov.
Special Analyses
I. Regulatory Planning and Review—
Economic Analysis
Executive Orders 13563, 13771, and
12866 direct agencies to assess costs and
benefits of available regulatory alterna-
tives and, if regulation is necessary, to se-
lect regulatory approaches that maximize
net benefits (including potential econom-
ic, 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 harmoniz-
ing rules, and of promoting flexibility. The
preliminary E.O. 13771 designation is de-
regulatory.
These regulations have been desig-
nated by the Office of Management and
Budget’s Office of Information and Reg-
ulatory Affairs (OIRA) as economically
significant under Executive Order 12866
pursuant to the Memorandum of Agree-
ment (April 11, 2018) between the Trea-
sury Department and the Office of Man-
agement and Budget regarding review of
tax regulations.
A. Background and Overview
Section 45Q was enacted on October
3, 2008, by section 115 of Division B
of the Energy Improvement and Exten-
sion Act of 2008, Public Law 110-343,
122 Stat. 3765, 3829, to provide a credit
for the sequestration of carbon dioxide.
On February 17, 2009, section 45Q was
amended by section 1131 of Division B
of the American Recovery and Reinvest-
ment Tax Act of 2009, Public Law 111-5,
123 Stat. 115, 325. Section 45Q was fur-
ther amended on December 19, 2014, by
section 209(j)(1) of Division A of the Tax
Increase Prevention Act of 2014, Public
Law 113-295, 128 Stat. 4010, 4030, and
most recently on February 9, 2018, by sec-
tion 41119 of Division D of the Bipartisan
Budget Act of 2018 (BBA), Public Law
115-123, 132 Stat. 64, 162.
On May 20, 2019, the IRS published
Notice 2019-32, 2019-21 I.R.B. 1187.
The notice requested general comments
on issues arising under section 45Q, as
well as specific comments concerning
the secure geological storage and mea-
surement of qualified carbon oxide, and
the recapture of the benefit of the credit
for carbon oxide sequestration. The IRS
received 116 comments from industry
members, environmental groups, and
other stakeholders.
In addition, the Treasury Department
and the IRS published Revenue Procedure
2020-12, 2020-11 I.R.B. 511, and Notice
2020-12, 2020-11 I.R.B. 495. Revenue
Procedure 2020-12 provides a safe har-
bor under which the IRS will treat part-
nerships as properly allocating the section
45Q credit in accordance with section
704(b). Notice 2020-12 provides guidance
on the determination of when construction
has begun on a qualified facility or on car-
bon capture equipment that may be eligi-
ble for the section 45Q credit.
Section 45Q generally allows a credit of
an amount per metric ton of qualified car-
bon oxide captured by the taxpayer using
carbon capture equipment. This qualified
carbon oxide must be captured according
to the statute in one of three general man-
ners. First, it may be disposed of in secure
geological storage. This would occur if it
were injected into a geologic formation,
such as a deep saline formation, an oil and
gas reservoir, or an unminable coal seam.
Second, the qualified carbon oxide may
be used as a tertiary injectant in a quali-
fied enhanced oil or natural gas recovery
project and disposed of in secure geologi-
cal storage. A “tertiary injectant” is quali-
fied carbon oxide that is injected into and
stored in a qualified enhanced oil or natu-
ral gas recovery project and contributes to
the extraction of crude oil or natural gas.

Bulletin No. 2020–30 165 July 20, 2020
Third, the qualified carbon oxide may
be “utilized” by fixing it through photo-
synthesis or chemosynthesis, converting
it to a material or chemical compound in
which it is securely stored, or using it for
any other purpose for which a commer-
cial market exists. “Utilization” generally
means the qualified carbon oxide was cap-
tured and permanently isolated from the
atmosphere, or displaced from being emit-
ted into the atmosphere. Calculation of the
amount utilized is based on an analysis of
lifecycle greenhouse gas emissions.
The amount of the credit depends on
the date the carbon capture equipment is
placed in service and whether the quali-
fied carbon oxide is disposed of in secure
storage, injected, or utilized. Different
rules and credit amounts apply to quali-
fied carbon oxide capture projects placed
in service before and after the date of en-
actment of the BBA on February 9, 2018.
Based on annual reports filed with the IRS
as of May, 2019, the aggregate amount
of qualified carbon oxide taken into ac-
count for purposes of section 45Q was
62,740,171 metric tons. This is an increase
of 2,972,247 metric tons from the preced-
ing year.
1
According to data reported to
the EPA’s Greenhouse Gas Reporting Pro-
gram (GHGRP), there were 65 enhanced
oil recovery (EOR) projects operating in
the U.S. in 2018. As of 2019, the National
Petroleum Council, an oil and natural gas
advisory committee to the Secretary of
Energy, reports that there were 10 carbon
capture, utilization, and storage projects
in the United States. DOE models project
that the section 45Q credit may result in
the sequestration of approximately 570
million metric tons of carbon oxides be-
tween 2018 and 2036.
B. Need for Regulation
The proposed regulations provide
guidance regarding the application of
section 45Q. Section 45Q requires regu-
lations for determining adequate security
measures for the secure geological storage
of qualified carbon oxide such that it does
not escape into the atmosphere, standards
for recapture of section 45Q credits, and
standards for carbon oxide utilization.
C. Economic Analysis
1. Baseline
The Treasury Department and the IRS
have assessed the economic impacts of
the final regulations relative to a no-action
baseline reflecting anticipated Federal in-
come tax-related behavior in the absence
of these regulations.
2. Economic Rationale for Issuing
Guidance for the 2018 BBA
The Treasury Department and the IRS
anticipate that the issuance of guidance
pertaining to section 45Q will provide
greater clarity in definitions than the al-
ternative of having no further descrip-
tions than the statute; more flexibility in
methods to establish qualifications for the
credit relative to prior guidance; and more
transparency regarding business arrange-
ments related to the section 45Q credit rel-
ative to the baseline. These features may
lower compliance burden and increase
economic investment by lowering regula-
tory barriers to entry, compared to a base-
line of having only the statue and not the
regulations.
3. Economic Analysis of Specific
Provisions
The final regulations embody certain
regulatory decisions that reflect necessary
regulatory discretion. These decisions
specify more fully how the section 45Q
credit is to be implemented.
i. Standard for Secure Geological Storage
a. Background
Section 45Q(f)(2) provides that the
Secretary, in consultation with the Ad-
ministrator of the EPA, the Secretary of
Energy, and the Secretary of the Interior,
must establish regulations for determin-
ing adequate security measures for the
secure geological storage of qualified
carbon oxide under section 45Q such
that qualified carbon oxide does not es-
cape into the atmosphere. Such term in-
cludes storage at deep saline formations,
oil and gas reservoirs, and unminable
coal seams under such conditions as the
Secretary may determine under such reg-
ulations.
Under existing law, injection of carbon
oxide into any underground reservoir re-
quires the operator to comply with EPA’s
Underground Injection Control (UIC) pro-
gram regulations and to obtain the appro-
priate UIC well permits. The UIC program
is designed to protect underground sourc-
es of drinking water from underground
injection. Operators that inject carbon di-
oxide underground are also subject to the
EPA’s GHGRP requirements set forth at
40 CFR Part 98.
Under 40 CFR Part 98, facilities that
inject carbon dioxide underground for
long-term containment of carbon diox-
ide in subsurface geologic formations are
specifically subject to 40 CFR Part 98
subpart RR (Geologic Sequestration of
Carbon Dioxide source category, referred
to as subpart RR). Facilities that are sub-
ject to subpart RR, including UIC Class
VI wells, are required to report basic
information on carbon dioxide received
for injection, develop and implement an
EPA-approved site-specific Monitoring,
Reporting, and Verification Plan (MRV
Plans); and report the amount of carbon
dioxide geologically sequestered using a
mass balance approach and annual moni-
toring activities.
Facilities that inject carbon dioxide un-
derground for the purposes of enhanced
oil (EOR) and gas recovery or any other
purpose other than geologic sequestration
are required to report basic information
on carbon dioxide received for injection
under 40 CFR Part 98 subpart UU (Injec-
tion of Carbon Dioxide source category,
referred to as subpart UU). At present, the
EPA does not generally require facilities
that conduct EOR to report under subpart
RR. However, the owner or operator may
voluntarily choose to opt in to subpart RR.
For both subparts RR and UU, annual re-
ports are submitted under 40 CFR Part 98
to the EPA’s GHGRP and undergo verifi-
cation by the EPA. Non-confidential data
from these reports are published on the
EPA’s website.
1
These data are available in Notice 2018-40, 2018-20 I.R.B. 583, and Notice 2019-31, 2019-20 I.R.B. 1181.

July 20, 2020 166 Bulletin No. 2020–30
b. Comments Received
Commenters noted that in order to
qualify for section 45Q credits, IRS Form
8933 defines “secure geological storage”
as requiring approval by the EPA of an
MRV Plan under 40 CFR Part 98 subpart
RR. Thus, meeting the Form 8933 condi-
tions would currently be achieved by re-
ceiving either (i) a UIC Class VI permit
plus an EPA-approved MRV Plan, which
UIC Class VI permit holders are already
required to have because they are subject
to subpart RR; or (ii) a UIC Class II permit
plus an EPA-approved MRV Plan, which
requires UIC Class II permit holders to opt
in to subpart RR. In this manner, the Form
8933 requirement that UIC Class II permit
holders receive an approved MRV Plan
creates an additional burden on such hold-
ers because– it requires them to opt in to
subpart RR to receive section 45Q credits.
In addition, some commenters expressed
concern that a requirement that they opt
in to subpart RR, in addition to being a
supplementary requirement, may create a
misalignment with state mineral property
and natural resource conservation laws.
Commenters supported the continued
use of subpart RR, but most commenters
sought an alternative method in addition
to subpart RR. Many of these commenters
considered the subpart RR requirements
burdensome, for the reasons noted imme-
diately above.
Many commenters suggested that a
standard adopted by the International Or-
ganization for Standardization (ISO) and
endorsed by the American National Stan-
dards Institute (ANSI), CSA/ANSI ISO
27916:19 standard, “Carbon dioxide cap-
ture, transportation and geological storage
– Carbon dioxide storage using enhanced
oil recovery (CO
2
-EOR),” (CSA/ANSI
ISO 27916:19) is a viable alternative to
subpart RR for establishing secure geo-
logical storage for the use of qualified car-
bon oxide for EOR.
The CSA/ANSI ISO 27916:19 was
developed for the purpose of quantifying
and documenting the total carbon dioxide
that is stored in association with carbon
dioxide-EOR. In general, reporting under
CSA/ANSI ISO 27916:19 (i) uses mass
balance accounting, (ii) has established
reporting and documentation require-
ments, and (iii) includes requirements for
documenting a monitoring program and a
containment assurance plan. ANSI, a not-
for-profit organization dedicated to sup-
porting the U.S. voluntary standards and
conformity assessment system, adopted
the CSA/ANSI ISO 27916:19 standard in
2019.
c. Regulatory Alternatives and Analysis
The Treasury Department and the IRS
considered three options for defining stan-
dards for secure geological storage: (i) the
requirements set forth in 40 CFR Part 98
subpart RR; (ii) an election for the taxpay-
er to comply with either the subpart RR
standards or the requirements set forth in
CSA/ANSI ISO 27916:19 and (iii) other
alternatives to subpart RR, including al-
lowing use of state programs.
In evaluating option (ii), the Treasury
Department and the IRS, in consultation
with the EPA, the DOE, and the Interi-
or Department, agree with commenters
that CSA/ANSI ISO 27916:19 is a via-
ble quantification methodology that is
adequate for the intent and purpose of
the statute. Both subpart RR and CSA/
ANSI ISO 27916:19 require an assess-
ment and monitoring of potential leakage
pathways; quantification of inputs, losses
and storage through a mass balance ap-
proach; and documentation of steps and
approaches. Under option (ii), operators
of UIC Class II wells that follow the
CSA/ANSI ISO 27916:19 standard could
elect to report under subpart RR but
would not be required to do so. Rather,
they could continue to report to the EPA
under subpart UU.
The Treasury Department and the IRS,
in consultation with the EPA, the DOE,
and the Interior Department, disagree with
commenter suggestions to allow the re-
porting rules promulgated by states as an
alternative to subpart RR or CSA/ANSI
ISO 27916:19. Reporting rules among
states are not uniform and states may have
different reporting requirements and dif-
ferent governing bodies to whom carbon
dioxide injection projects are required to
report. The adoption of such rules by the
Treasury Department and the IRS would
substantially increase the administrative
burden on the IRS. The Treasury Depart-
ment and the IRS did not attempt to deter-
mine to what extent particular states’ stan-
dards would fulfill the intent and purpose
of the statute.
The ability for taxpayers to elect to use
the CSA/ANSI ISO 27916:19 standard in-
stead of subpart RR could yield econom-
ic differences in three ways. First, if the
two standards are different in their costs
of compliance, then allowing a choice
allows EOR project operators to choose
the less costly standard. This would re-
duce costs of compliance and regulatory
burden. Second, to the extent that the dif-
ference in compliance costs between the
two standards is high and that difference
is a significant portion of start-up costs,
then allowing a less expensive standard
might lead to more investment and more
new projects. Third, operators can use the
option that best aligns with their project
goals and timeframes. The Treasury De-
partment and the IRS project that com-
pliance costs for some taxpayers may be
lower under the CSA/ANSI ISO 27916:19
standard than under subpart RR. Some
commenters stated that subpart RR may
create a misalignment for UIC Class II
wells with both state mineral property and
natural resource conservation laws; and
that such potential misalignment would be
costly to taxpayers. This stated misalign-
ment would not be implicated with the use
of the ISO standards.
The Treasury Department and the IRS
recognize that the two standards differ
in terms of who would be responsible
for reviewing and approving a seques-
tration plan and for identifying leakage
once a project is in place. In addition,
the standards differ because unless oth-
erwise required by law, the CSA/ANSI
ISO 27916:19 standard does not require
public reports of the amount of qualified
carbon oxide sequestered, whereas the
subpart RR standard does entail the pub-
lic provision of such data. The Treasury
Department and the IRS did not attempt
to analyze the economic consequences of
these differences.
The Treasury Department and the
IRS did not attempt to provide quantita-
tive estimates of the difference in com-
pliance costs between the CSA/ANSI
ISO 27916:19 standard and a regulato-
ry alternative of requiring only subpart
RR because suitable data are not readily
available at this level of detail. Further,
the Treasury Department and IRS did not

Bulletin No. 2020–30 167 July 20, 2020
attempt to estimate the effects of compli-
ance cost differences on investment or se-
questration.
The Treasury Department and the IRS
solicit comments on these findings and
particularly solicit data, models, or other
evidence that could enhance the rigor with
which the final regulations are developed.
ii. Credit Recapture
Section 45Q(f)(4) requires the Treasury
Department and the IRS to promulgate
regulations to provide for the recapture of
section 45Q credits in the event of leak-
age. “Recapture” refers to the repayment
of the tax credits claimed, and not to the
capturing of CO2 that may have leaked
from the project after being injected.
In response to Notice 2019-32, 2019-21
I.R.B. 1187, several commenters request-
ed clarification regarding credit recapture,
including (i) when the tax would be due in
relation to the year of a recapture event,
(ii) how long the IRS can “look back” to
recapture credits in the event of leakage
(lookback period), and (iii) the length of
time after ceasing to claim credits during
which a leakage event would lead to re-
capture of credits.
All of these issues require a definition
of the recapture period. The proposed reg-
ulations provide that the recapture period
begins on the date of the first injection
of qualified carbon oxide for disposal in
secure geological storage or use as a ter-
tiary injectant and ends the earlier of five
years after the last taxable year in which
the taxpayer claimed a section 45Q credit
or the date monitoring ends under subpart
RR requirements or the CSA/ANSI ISO
27916:19 standard.
For clarity we will describe two
sub-portions of the recapture period,
the “post-credit-claiming period” and
the “lookback period”. The “post-cred-
it-claiming period” is the lesser of 5 years
after the last taxable year in which the
taxpayer claimed a section 45Q credit
or the date monitoring ends under sub-
part RR requirements or the CSA/ANSI
ISO 27916:19 standard. Depending on
the project’s individual requirements, the
post-credit-claiming period is therefore
between zero and five years. Whereas the
“lookback period” is the portion of the re-
capture period during which the IRS can
look back after a leakage event to recap-
ture credits. Most commenters supported
a lookback period of three to five years.
A leakage event that leads to recapture
of credits can occur any time during the
recapture period. A leakage event that oc-
curs after the recapture period would not
lead to recapture of credits.
The proposed regulations provide that
any recapture amount will be accounted
for in the taxable year that it is identified
and reported. The amount of credits that
can be recaptured in the event of leakage
depends on the length of the lookback pe-
riod and the amount of the leakage.
If, during the recapture period, it is de-
termined that qualified carbon oxide has
leaked to the atmosphere, the taxpayer
will have a recapture amount if the leaked
amount of qualified carbon oxide exceeds
the amount of qualified carbon dioxide
disposed of in secure geological storage
or used as a tertiary injectant in that tax-
able year. That excess amount of leaked
qualified carbon oxide will be recaptured
at a credit rate calculated on a LIFO ba-
sis (that is, such excess leaked qualified
carbon oxide will be deemed attributable
first to the first preceding year, then to sec-
ond preceding year, and so forth up to five
years) for ease of administration. The tax-
payer must add the amount of the recap-
tured section 45Q tax credit to the amount
of tax due in the taxable year in which the
recapture event occurs. This rule applies
regardless of whether the project injected
qualified carbon oxide in the taxable year.
In response to Notice 2019-32, com-
menters expressed concerns with how
long the length of a lookback period after
the project operator stops claiming section
45Q credits (for example, if the project is
finished or the period for claiming cred-
its ends) that a leakage event can lead to
recapture. Commenters were concerned
that investors would deem the risk too
high to invest if the end of the recapture
period extended too long after the final
year of claiming section 45Q credits. To
address this concern the proposed reg-
ulations provide that the recapture pe-
riod begins on the date of first injection
of qualified carbon oxide for disposal in
secure geological storage or use as a ter-
tiary injectant and ends the earlier of five
years after the last taxable year in which
the taxpayer claimed a section 45Q credit
or the date monitoring ends under subpart
RR requirements or the CSA/ANSI ISO
27916:19 standard.
The Treasury Department and the IRS
considered alternative specifications for
the lookback period other than five years.
Open-ended or undefined lookback peri-
ods would increase the financial risk as-
sociated with the project and dissuade in-
vestors, particularly for projects for which
the section 45Q credit would constitute a
sizeable share of revenue. The proposed
regulations, by allowing for a specific
and finite lookback period, will encour-
age more investment in projects relative
to an unspecified or infinite period. The
Treasury Department and the IRS, in con-
sultation with the EPA, the DOE, and the
Interior Department, have determined that
for the period after the lookback period,
existing environmental regulations and
standards will ensure integrity consistent
with the intent and purpose of the statute.
In examining possible lookback peri-
ods, the Treasury Department and the IRS
have not developed a quantitative model
to incorporate the costs of monitoring and
the probability of leakage along with the
tax administration burden involved in the
lookback period.
The Treasury Department and the IRS
welcome comments on the length of the
lookback period and particularly solicit
data, models, or other evidence that could
enhance the rigor with which the final reg-
ulations are developed.
iii. Utilization of Qualified Carbon Oxide
Section 45Q(f)(5)(A) provides that
“utilization of qualified carbon oxide”
means (i) the fixation of such qualified car-
bon oxide through photosynthesis or che-
mosynthesis, such as through the growing
of algae or bacteria; (ii) the chemical con-
version of such qualified carbon oxide to a
material or chemical compound in which
such qualified carbon oxide is securely
stored; or (iii) the use of such qualified
carbon oxide for any other purpose for
which a commercial market exists (with
the exception of use as a tertiary injectant
in a qualified enhanced oil or natural gas
recovery project), as determined by the
Secretary.
Section 45Q(f)(5)(B) provides a
methodology to determine the amount

July 20, 2020 168 Bulletin No. 2020–30
of qualified carbon oxide utilized by the
taxpayer. Such amount is equal to the
metric tons of qualified carbon oxide
which the taxpayer demonstrates, based
upon an analysis of lifecycle greenhouse
gas emissions and subject to such re-
quirements as the Secretary, in consul-
tation with the Secretary of Energy and
the Administrator of the EPA, determines
appropriate, were (i) captured and perma-
nently isolated from the atmosphere, or
(ii) displaced from being emitted into the
atmosphere, through use of a process de-
scribed in section 45Q(f)(5)(A). The term
“lifecycle greenhouse gas emissions” has
the same meaning given such term under
subparagraph (H) of section 211(o)(1) of
the Clean Air Act (42 U.S.C. 7545(o)(1)
(H)), as in effect on the date of enactment
of the BBA on February 9, 2018, except
that “product” is substituted for “fuel”
each place it appears in such subpara-
graph.
The term “lifecycle greenhouse gas
emissions” means the aggregate quantity
of greenhouse gas emissions (including
direct emissions and significant indirect
emissions such as significant emissions
from land use changes), related to the full
product lifecycle, including all stages of
product and feedstock production and dis-
tribution, from feedstock generation or ex-
traction through the distribution and deliv-
ery and use of the finished product to the
ultimate consumer, where the mass values
for all greenhouse gases are adjusted to
account for their relative global warming
potential.
Commenters proposed multiple meth-
ods for the Treasury Department and the
IRS to allow for calculating “utilization”
of qualified carbon oxide. The proposed
regulations provide clarifications regard-
ing: (i) standards for the lifecycle analysis
(LCA) of emissions that were captured or
displaced for purposes of section 45Q(f)
(5)(B); and (ii) the agency with responsi-
bility to review the LCA.
The Treasury Department and the IRS,
in consultation with the EPA and the DOE,
have determined that the LCA must be in
writing and either performed or verified
by a professionally-licensed third par-
ty that uses generally-accepted standard
practices of quantifying the greenhouse
gas emissions of a product or process
and comparing that impact to a baseline.
In particular, the analysis must contain
documentation consistent with the Inter-
national Organization for Standardization
(ISO) 14044:2006, “Environmental man-
agement — Life cycle assessment — Re-
quirements and Guidelines,” as well as a
statement documenting the qualifications
of the third party.
The proposed regulations require a tax-
payer submit an LCA report to the IRS and
the DOE prior to the taxpayer claiming
the section 45Q credit. The LCA will be
subject to a technical review by the DOE,
and the IRS, in consultation with the DOE
and the EPA, will determine whether to
approve the LCA.
The proposed regulations provide
greater clarity and examples for calculat-
ing qualified carbon oxide utilization. This
enhanced clarity should increase transpar-
ency and lower compliance burden. In
addition, the proposed regulations allow
for oversight of the LCA plans by a third
party, the DOE, and the IRS (in consulta-
tion with the DOE and the EPA); evalua-
tion and approval of the plans before the
taxpayer claims the credit will potentially
reduce taxpayer compliance costs and IRS
administrative costs. Following indus-
try-specific standards will also increase
clarity in qualifying for the section 45Q
credit.
The proposed regulations provide an
economic gain arising from enhanced
clarity regarding the rules of the section
45Q credit within the context of the intent
and purpose of the statute. The Treasury
Department and the IRS project that this
clarity will encourage additional invest-
ment in carbon oxide utilization projects
relative to the no-action baseline. The
Treasury Department and the IRS have
not estimated this gain because we do not
have readily available data or models to
predict (i) the interpretations that taxpay-
ers might have made in the absence of
this guidance, and (ii) the effect of such
guidance on the investment that taxpay-
ers would make, relative to alternative
regulatory approaches or the no-action
baseline.
The Treasury Department and the IRS
solicit comments on the economic conse-
quences of these decisions and particular-
ly solicit data, models, or other evidence
that could enhance the rigor with which
the final regulations are developed.
II. Paperwork Reduction Act
The collection of information in these
proposed regulations with respect to sec-
tion 45Q are in proposed §1.45Q-1(e),
§1.45Q-1(h)(3)(iv), §1.45Q-1(h)(2)(v),
and §1.45Q-2(h)(2), §1.45Q-3(d), and
§1.45Q-4(c)(1).
The collection of information in pro-
posed §1.45Q-1(e) is an election to have
the dollar amounts applicable under
§1.45Q-1(b) apply in lieu of the dollar
amounts applicable under §1.45Q-1(d) for
each metric ton of qualified carbon oxide
that a taxpayer captures using carbon cap-
ture equipment which is originally placed
in service at a qualified facility on or after
February 9, 2018. A new election must be
made for each taxable year that the tax-
payer wishes to allow a credit claimant to
claim section 45Q credits. The election
must be made on a Form 8933 (or succes-
sor forms, or pursuant to instructions and
other guidance), and applies to all metric
tons of qualified carbon oxide captured
by the taxpayer at the qualified facility
throughout the full 12-year credit period.
The IRS is contemplating making addi-
tional changes to the Form 8933 to take
these proposed regulations into account.
The collection of information in pro-
posed §1.45Q-1(h)(3)(iv) is an election
that a taxpayer (electing taxpayer) eligible
for the section 45Q credit may make to
allow the person that disposes of the qual-
ified carbon oxide, utilizes the qualified
carbon oxide, or uses the qualified carbon
oxide as a tertiary injectant to claim the
credit (credit claimant). The electing tax-
payer that makes the section 45Q(f)(3)(B)
election must file a statement of election
containing the information described in
§1.45Q-1(h)(3)(iv) with the electing tax-
payer’s Federal income tax return or Form
1065 for each taxable year in which the
credit arises. The section 45Q(f)(3)(B)
election must be made in accordance with
Form 8933 (or successor forms, or pursu-
ant to instructions and other guidance) no
later than the time prescribed by law (in-
cluding extensions) for filing the Federal
income tax return for the year in which the
credit arises. The election may not be filed
with an amended Federal income tax re-
turn, an amended Form 1065, or an AAR,
as applicable, after the prescribed date (in-
cluding extensions) for filing the original

Bulletin No. 2020–30 169 July 20, 2020
Federal income tax return or Form 1065
for the year, with the exception of amend-
ed Federal income tax returns, amended
Forms 1065, or AARs, as applicable, for
any taxable year ending after February 9,
2018, and before taxable years beginning
after June 2, 2020. New section 45Q(f)(3)
(B) elections must be made for each tax-
able year that the electing taxpayer wishes
to allow credit claimants to claim section
45Q credits. The IRS is contemplating
making additional changes to the Form
8933 to take these proposed regulations
into account.
The collection of information in pro-
posed §1.45Q-1(h)(2)(v) requires that if
a taxpayer enters into a binding written
contract with a third party that physical-
ly carries out the disposal, injection, or
utilization of qualified carbon oxide, the
existence of each contract and the par-
ties involved must be reported to the IRS
annually on a Form 8933 (or successor
forms, or pursuant to instructions and oth-
er guidance) by each party to the contract,
regardless of the party claiming the credit.
The IRS is contemplating making addi-
tional changes to the Form 8933 to take
these proposed regulations into account.
The collection of information in pro-
posed §1.45Q-2(h)(2) requires that a tax-
payer that claims a section 45Q credit for
qualified carbon oxide that is captured
and then used as a tertiary injectant in a
qualified enhanced oil or natural gas re-
covery project certify such qualified en-
hanced oil or natural gas recovery project
as required under §1.43-3. This requires
that the taxpayer obtain a petroleum en-
gineer’s certification under §1.43-3(a)(3)
for each project that must be attached to
a Form 8933 (or successor forms, or pur-
suant to instructions and other guidance)
and filed not later than the last date pre-
scribed by law (including extensions) for
filing the operator’s or designated own-
er’s Federal income tax return or Form
1065 for the first taxable year in which
qualified carbon oxide is injected into
the reservoir. If a section 45Q credit is
claimed on an amended Federal income
tax return, an amended Form 1065, or an
AAR, as applicable, the petroleum engi-
neer’s certification will be treated as filed
timely if it is attached to a Form 8933 that
is submitted with such amended federal
income tax return, amended Form 1065,
or AAR. With respect to a section 45Q
credit that is claimed on a timely filed
Federal income tax return or Form 1065
for a taxable year ending after February
9, 2018 and beginning before June 2,
2020, for which the petroleum engineer’s
certification was not submitted, the pe-
troleum engineer’s certification will be
treated as filed timely if it is attached to
an amended Form 8933 for any taxable
year ending after February 9, 2018, but
not for taxable years beginning after June
2, 2020. Additionally, the taxpayer is re-
quired to provide an operator’s continued
certification under §1.43-3(b)(3) for each
project that must be attached to a Form
8933 (or successor forms, or pursuant to
instructions and other guidance) and filed
not later than the last date prescribed by
law (including extensions) for filing the
operator’s or designated owner’s Feder-
al income tax return or Form 1065 for
taxable years after the taxable year for
which the petroleum engineer’s certifica-
tion is filed but not after the taxable year
in which injection activity ceases and all
injection wells are plugged and aban-
doned. The IRS is contemplating making
additional changes to the Form 8933 to
take these proposed regulations into ac-
count.
The collection of information in pro-
posed §1.45Q-3(d) requires a taxpayer
that claims a section 45Q credit for quali-
fied carbon oxide that is captured and then
used as a tertiary injectant in a qualified
enhanced oil or natural gas recovery proj-
ect to certify the volume of carbon oxide
claimed for purposes of section 45Q. A
taxpayer that reported volumes of carbon
oxide to the EPA pursuant to subpart RR
may self-certify the volume of carbon
oxide claimed for purposes of section
45Q. Alternatively, if the taxpayer deter-
mined volumes pursuant to CSA/ANSI
ISO 27916:19, a taxpayer may prepare
documentation as outlined in CSA/ANSI
27916:2019 internally, but such docu-
mentation must be provided to a qualified
independent engineer or geologist, who
then must certify that the documentation
provided, including the mass balance cal-
culations as well as information regarding
monitoring and containment assurance
is accurate and complete. Taxpayers that
capture carbon oxide giving rise to the
section 45Q credit must file Form 8933 (or
successor forms, or pursuant to instruc-
tions and other guidance) with a timely
filed tax return, including extensions. Tax-
payers that dispose of, inject, or utilize
qualified carbon oxide must also file Form
8933 (or successor forms, or pursuant to
instructions and other guidance) with a
timely filed
Federal income tax return or Form
1065, including extensions. The IRS is
contemplating making additional changes
to the Form 8933 to take these proposed
regulations into account.
The collection of information in pro-
posed §1.45Q-4(c)(1) requires a taxpay-
er that utilizes qualified carbon oxide to
measure the amount of carbon oxide cap-
tured and utilized through a combination
of direct measurement and life cycle anal-
ysis (LCA). The measurement and writ-
ten LCA report must be performed by or
verified by an independent third party. The
report must contain documentation con-
sistent with the International Organization
for Standardization (ISO) 14044:2006,
“Environmental management — Life
cycle assessment — Requirements and
Guidelines,” as well as a statement doc-
umenting the qualifications of the third
party, including proof of appropriate pro-
fessional license or foreign equivalent,
and an affidavit from the third-party stat-
ing that it is independent from the taxpay-
er. The taxpayer must submit the written
LCA report to the IRS and the DOE. The
LCA will be subject to a technical review
by the DOE, and the IRS, in consultation
with the DOE and the EPA, will determine
whether to approve the LCA.
For purposes of the Paperwork Reduc-
tion Act of 1995 (51087 U.S.C. 3507(d))
(PRA), the reporting burden associated
with proposed §1.45Q-1(e), §1.45Q-1(h)
(3)(iv), §1.45Q-1(h)(2)(v), §1.45Q-2(h)
(2), §1.45Q-3(d), and §1.45Q-4(c)(1) will
be reflected in the IRS Paperwork Reduc-
tion Act Submission for the Form 8933
(OMB control numbers 1545-0123 and
1545-2132). The IRS is anticipating mak-
ing revisions to Form 8933 to take these
proposed regulations into account. The
Treasury Department and the IRS request
comments on all aspects of information
collection burdens related to the proposed
regulations. In addition, when available,
drafts of IRS forms are posted for com-
ment at www.irs.gov/draftforms.

July 20, 2020 170 Bulletin No. 2020–30
The current status of the Paperwork
Reduction Act submissions related to
the section 45Q credit is provided in the
following table. The section 45Q provi-
sions are included in aggregated burden
estimates for the OMB control numbers
listed below which, in the case of 1545-
0123, represents a total estimated burden
time, including all other related forms and
schedules for corporations, of 3.157 bil-
lion hours and total estimated monetized
costs of $58.148 billion ($2017). The bur-
den estimates provided in the OMB con-
trol numbers are aggregate amounts that
relate to the entire package of forms asso-
ciated with the OMB control number, and
will in the future include but not isolate
the estimated burden of only the section
45Q requirements. These numbers are
therefore unrelated to the future calcula-
tions needed to assess the burden imposed
by the proposed regulations. No burden
estimates specific to the proposed regula-
tions are currently available. The Treasury
Department has not estimated the burden,
including that of any new information
collections, related to the requirements
under the proposed regulations. Those es-
timates would capture both changes made
to section 45Q by the BBA and those that
arise out of discretionary authority exer-
cised in the proposed regulations. The
Treasury Department and the IRS request
comments on all aspects of information
collection burdens related to the proposed
regulations.
When available, drafts of IRS forms
are posted for comment at www.irs.gov/
draftforms.
FormType of Filer
OMB Num-
ber(s)
Status
Form 8933Business1545-2132
Sixty-day notice published in the Federal Register on 10/21/19 (84 FR
56283). Public comment period closed on 12/20/19. Thirty-day notice
published in the Federal Register on 1/31/20 (85 FR 5776). Public
comment period closed on 3/2/20. OIRA approval is pending.
Form 8933
Business
(NEW Model)
1545-0123
Sixty-day notice published in the Federal Register on 9/30/19 (84 FR
51718). Public Comment period closed on 11/29/19. Thirty-day notice
published in the Federal Register on 12/19/19 (84 FR 69825). Public
Comment period closed on 1/21/20. Approved by OIRA on 1/30/20.
Link: https://hs—www—federalregister—gov.tickly.io/documents/2019/10/21/2019-22844/proposed-col-
lection-comment-request-for-form-8933
III. Regulatory Flexibility Act
The Regulatory Flexibility Act (5
U.S.C. 601 et seq.) (RFA) imposes cer-
tain requirements with respect to Feder-
al rules that are subject to the notice and
comment requirements of section 553(b)
of the Administrative Procedure Act (5
U.S.C. 551 et seq.) and that are likely to
have a significant economic impact on a
substantial number of small entities. Un-
less an agency determines that a proposal
is not likely to have a significant eco-
nomic impact on a substantial number of
small entities, section 603 of the RFA re-
quires the agency to present an initial reg-
ulatory flexibility analysis (IRFA) of the
proposed rule. The Treasury Department
and the IRS have not determined wheth-
er the proposed rule, when finalized, will
likely have a significant economic impact
on a substantial number of small enti-
ties. This determination requires further
study. However, because there is a possi-
bility of significant economic impact on
a substantial number of small entities, an
IRFA is provided in these proposed regu-
lations. The Treasury Department and the
IRS invite comments on both the number
of entities affected and the economic im-
pact on small entities.
Pursuant to section 7805(f), this no-
tice of proposed rulemaking has been
submitted to the Chief Counsel of Advo-
cacy of the Small Business Administra-
tion for comment on its impact on small
business.
1. Need for and Objectives of the Rule
The proposed regulations will pro-
vide greater clarity to taxpayers for pur-
poses of claiming the section 45Q credit
for the capture and disposal, injection, or
utilization of qualified carbon oxide. The
proposed rule is expected to encourage
taxpayers to invest in carbon capture tech-
nologies. Thus, the Treasury Department
and the IRS intend and expect that the
proposed rule will deliver benefits across
the economy that will beneficially impact
various industries and reduce emissions
of carbon oxides that would otherwise be
released into the atmosphere as industrial
emission of greenhouse gasses or lead to
such release.
2. Affected Small Entities
The Small Business Administration
estimates in its 2018 Small Business
Profile that 99.9 percent of United States
businesses meet its definition of a small
business. The applicability of these pro-
posed regulations does not depend on the
size of the business, as defined by the
Small Business Administration. As de-
scribed more fully in the preamble to this
proposed regulation and in this IRFA,
these rules may affect a variety of dif-
ferent businesses across several different
industries.
The section 45Q credit incentivizes
three different categories of activities re-
lated to captured carbon oxide. First, the
section 45Q credit is available to taxpay-
ers who capture carbon oxide and dis-
pose of it in secure geological storage.
This would occur if it were injected into
a geological formation, such as a deep
saline formation, an oil and gas reservoir,
or an unminable coal seam. The taxpayer
claiming the credit for carbon oxide that is
securely stored can be either the taxpayer
who owns the capture equipment, or if an

Bulletin No. 2020–30 171 July 20, 2020
election is made, the taxpayer who dispos-
es of the carbon oxide.
Second, the section 45Q credit is also
available for carbon oxide captured and
used as a tertiary injectant in a qualified
enhanced oil or natural gas recovery proj-
ect and disposed of in secure geological
storage. The taxpayer claiming the credit
for carbon oxide that is used as a tertiary
injectant in enhanced oil recovery proj-
ects can be either the taxpayer who owns
the capture equipment, or if an election is
made, the taxpayer who uses the carbon
oxide as a tertiary injectant in a qualified
enhanced oil or natural gas recovery proj-
ect.
And third, the section 45Q credit is
available for carbon oxide “utilized” by
fixing it through photosynthesis or che-
mosynthesis, converted to a material or
chemical compound in which it is secure-
ly stored, or used for any other purpose for
which a commercial market exists. The
taxpayer claiming the credit for utilization
of carbon oxide can be either the taxpayer
who owns the carbon capture equipment,
or if an election is made, the taxpayer who
utilizes the carbon oxide.
Because the potential credit claimants
in all three of these scenarios can vary,
including potential tax equity investors
from the financial services sector as credit
claimants, it is difficult to estimate at this
time the impact of these proposed regula-
tions, if any, on small businesses.
The Treasury Department and the IRS
expect to receive more information on
the impact on small businesses through
comments on this proposed rule and again
when taxpayers start to claim the section
45Q credit using the guidance and proce-
dures provided in these proposed regula-
tions.
3. Impact of the Rule
The proposed regulations will allow
taxpayers to plan investments and trans-
actions based on the ability to claim the
section 45Q credit. The increased use of
the section 45Q credit may lead to in-
creased investment in infrastructure to
transport carbon dioxide, and increased
development of carbon capture technolo-
gies. In addition, the increased use of the
section 45Q credit will incentivize the
development of technologies for utiliza-
tion of carbon oxide. The recordkeeping
and reporting requirements will increase
for taxpayers that claim the section 45Q
credit. This includes costs associated
with the taxpayer filing the Form 8933,
as well as required election statements
and maintaining records to substantiate
carbon capture of carbon oxide, dispos-
al in secure geological storage, use as a
tertiary injectant in a qualified enhanced
oil or natural gas recovery project and
disposal in secure geological storage,
or utilization. Each taxpayer will be re-
quired to file a separate Form 8933 for
each year that a section 45Q credit is
claimed or that an election is made with
respect to a section 45Q credit. Although
the Treasury Department and the IRS do
not have sufficient data to determine pre-
cisely the likely extent of the increased
costs of compliance, the estimated bur-
den of complying with the recordkeeping
and reporting requirements are described
in the Paperwork Reduction Act section
of the preamble.
4. Alternatives Considered
As described in more detail in the
Regulatory Impact Analysis of this pre-
amble, the Treasury Department and
the IRS considered alternatives to the
proposed regulations. For example, in
providing rules related to how to demon-
strate secure geological storage in the
case of tertiary injection and disposal
through secure geological storage, the
Treasury Department and the IRS con-
sidered whether to (i) require compliance
with subpart RR, (ii) allow use of subpart
RR or CSA/ANSI ISO 27916:19, or (iii)
other alternatives to subpart RR includ-
ing use of state programs. Commenters
to Notice 2019-32, 2019-21 I.R.B. 1187,
consistently recommended CSA/ANSI
ISO 27916:19 as a potential alternative
to subpart RR. The Treasury Department
and the IRS, in consultation with the
DOE, the EPA and the Interior Depart-
ment, agreed that, in the case of tertia-
ry injection and disposal through secure
geological storage, allowing the use of
subpart RR or CSA/ANSI ISO 27916:19
would sufficiently demonstrate secure
geological storage for purposes of the
statutory requirement, without creating
or imposing undue burdens on taxpayers.
5. Duplicative, Overlapping, or
Conflicting Federal Rules
The proposed rule would not dupli-
cate, overlap, or conflict with any rele-
vant Federal rules. As discussed above,
the proposed rule would merely provide
procedures and definitions to allow tax-
payers to claim the section 45Q credit.
The Treasury Department and the IRS
invite input from interested members of
the public about identifying and avoiding
overlapping, duplicative, or conflicting
requirements.
Comments and Requests for a Public
Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any comments that are
submitted timely to the IRS as prescribed
in this preamble under the “ADDRESS-
ES” heading. The Treasury Department
and the IRS request comments on all as-
pects of the proposed regulations. Spe-
cifically, in section 4 of the Summary of
Comments and Explanation of Provi-
sions, the Treasury Department and the
IRS request specific comments on how
to achieve consistency in boundaries and
baselines so that similarly situated taxpay-
ers will be treated consistently. The Trea-
sury Department and the IRS also request
specific comments regarding the definition
of commercial markets and standards for
Lifecycle Analysis. Additionally, in sec-
tion 5 of the Summary of Comments and
Explanation of Provisions, the Treasury
Department and the IRS request specific
comments on how to apply the recapture
provisions to section 45Q credits that are
carried forward to future taxable years due
to insuffificent income tax liability in the
current taxable year.
Any electronic comments submitted,
and to the extent practicable any pa-
per comments submitted, will be made
available at www.regulations.gov or
upon request. A public hearing will be
scheduled if requested in writing by any
person who timely submits electronic or
written comments as prescribed in this
preamble under the “DATES” heading.
Requests for a public hearing are also en-
couraged to be made electronically. If a
public hearing is scheduled, notice of the

July 20, 2020 172 Bulletin No. 2020–30
date and time for the public hearing will
be published in the Federal Register.
Announcement 2020-4, 2020-17 IRB 1,
provides that until further notice, public
hearings conducted by the IRS will be
held telephonically. Any telephonic hear-
ing will be made accessible to people
with disabilities.
IV. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates
Reform Act of 1995 requires that agencies
assess anticipated costs and benefits and
take certain other actions before issuing a
final rule that includes any Federal man-
date that may result in expenditures in any
one year by a state, local, or tribal govern-
ment, in the aggregate, or by the private
sector, of $100 million in 1995 dollars,
updated annually for inflation. In 2018,
that threshold is approximately $150 mil-
lion. This rule does not include any Fed-
eral mandate that may result in expendi-
tures by state, local, or tribal governments,
or by the private sector in excess of that
threshold.
V. Executive Order 13132: Federalism
Executive Order 13132 (entitled Feder-
alism) prohibits an agency (to the extent
practicable and permitted by law) from
promulgating any regulation that has fed-
eralism implications, unless the agency
meets the consultation and funding re-
quirements of section 6 of the Executive
Order, if the rule either imposes substan-
tial, direct compliance costs on state and
local governments, and is not required by
statute, or preempts state law. This pro-
posed rule does not have federalism im-
plications and does not impose substantial
direct compliance costs on state and local
governments or preempt state law within
the meaning of the Executive Order.
Drafting Information
The principal author of the proposed
regulations is Maggie Stehn of the Office
of Associate Chief Counsel (Passthroughs
& Special Industries). However, other per-
sonnel from the Treasury Department and
the IRS participated in the development of
the proposed regulations.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and record-
keeping requirements.
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is pro-
posed to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 is amended by adding entries in
numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
* * * * *
Section 1.45Q-1 also issued under 26
U.S.C. 45Q.
Section 1.45Q-2 also issued under 26
U.S.C. 45Q(c), (d), and (e).
Section 1.45Q-3 also issued under 26
U.S.C. 45Q(f)(2).
Section 1.45Q-4 also issued under 26
U.S.C. 45Q(f)(5).
Section 1.45Q-5 also issued under 26
U.S.C. 45Q(f)(4).
*****
Par. 2. Sections 1.45Q-0, 1.45Q-1,
1.45Q-2, 1.45Q-3, 1.45Q-4, and 1.45Q-5
are added to read as follows:
§1.45Q-0 Table of Contents
This section lists the captions contained
in §§1.45Q-1 through 1.45Q-5.
§1.45Q-1 Credit for Carbon Oxide Se-
questration.
(a) In general.
(b) Credit amount for carbon capture
equipment originally placed in service be-
fore February 9, 2018.
(c) Credit amount for carbon capture
equipment originally placed in service on
or after February 9, 2018.
(d) Applicable dollar amount.
(1) Applicable dollar amount for any
taxable year beginning in a calendar year
after 2016 and before 2027 for qualified
carbon oxide not used as a tertiary in-
jectant or utilized.
(2) Applicable dollar amount for any
taxable year beginning in a calendar year
after 2026 for qualified carbon oxide not
used as a tertiary injectant or utilized.
(3) Applicable dollar amount for any tax-
able year beginning in a calendar year after
2016 and before 2027 for qualified carbon
oxide used as a tertiary injectant or utilized.
(4) Applicable dollar amount for any
taxable year beginning in a calendar year
after 2026 for qualified carbon oxide used
as a tertiary injectant or utilized.
(e) Election to apply the $10 and $20
credit amounts in lieu of the applicable
dollar amounts.
(f) Application of section 45Q for cer-
tain carbon capture equipment placed in
service before February 9, 2018.
(g) Installation of additional carbon
capture equipment.
(1) Allocation of section 45Q credits
for facilities installing additional carbon
capture equipment.
(2) Additional carbon capture equip-
ment.
(3) New carbon capture equipment.
(4) Examples.
(i) Example 1.
(ii) Example 2.
(iii) Example 3.
(h) Eligibility for the section 45Q cred-
it.
(1) Person to whom the section 45Q
credit is attributable.
(i) Equipment placed in service before
February 9, 2018.
(ii) Equipment placed in service on or
after February 9, 2018.
(iii) Reporting.
(2) Contractually ensuring disposal, in-
jection, or utilization of qualified carbon
oxide.
(i) Binding written contract.
(ii) Multiple binding written contracts
permitted.
(iii) Contract provisions.
(iv) Reporting of contract information.
(v) Relationship with election to allow
section 45Q credit.
(3) Election to allow the section 45Q
credit to another taxpayer.
(i) Example.
(ii) Time and manner of making elec-
tion.
(iii) Annual election.
(iv) Required information.
(v) Requirements for credit claimant.
(i) Applicability date.
§1.45Q-2 Definitions for Purposes of
§§1.45Q-1 through 1.45Q-5.

Bulletin No. 2020–30 173 July 20, 2020
(a) Qualified carbon oxide.
(b) Recycled carbon oxide.
(c) Carbon capture equipment.
(1) Use of carbon capture equipment.
(2) Carbon capture equipment compo-
nents.
(3) Excluded components.
(i) In general.
(ii) Calculation.
(iii) Consequences.
(d) Industrial facility.
(1) Exclusion.
(2) Industrial source.
(3) Manufacturing process.
(4) Example.
(e) Electricity generating facility.
(f) Direct air capture facility.
(g) Qualified facility.
(1) Emissions and capture require-
ments.
(2) Examples.
(i) Example 1.
(ii) Example 2.
(iii) Example 3.
(3) Annualization of first-year qualified
carbon oxide emission and capture amounts.
(4) Election for applicable facilities.
(i) Applicable facility.
(ii) Time and manner of making elec-
tion.
(iii) Retroactive credit revocations.
(5) Retrofitted qualified facility or
carbon capture equipment (80/20 Rule).
(h) Qualified enhanced oil or natural gas
recovery project.
(1) Application of §§1.43-2 and 1.43-3.
(2) Required certification.
(3) Natural gas.
(4) Timely filing of petroleum engi-
neer’s certification.
(5) Carbon oxide injected in oil reser-
voirs.
(6) Tertiary injectant.
(i) Section 45Q credit.
(j) Applicability date.
§1.45Q-3 Secure Geological Storage.
(a) In general.
(b) Requirements for secure geological
storage.
(c) Documentation.
(d) Certification.
(e) Failure to submit complete docu-
mentation or certification.
(f) Applicability date.
§1.45Q-4 Utilization of Qualified Car-
bon Oxide.
(a) In general.
(b) Measurement.
(c) Lifecycle greenhouse gas emissions
and lifecycle analysis.
(1) In general.
(2) Measurement.
(3) Approval of the LCA.
(4) Submission of the LCA. [Re-
served].
(d) Commercial market. [Reserved].
(e) Standards of adequate lifecycle
analysis. [Reserved].
(f) Applicability date.
§1.45Q-5 Recapture of Credit.
(a) Recapture event.
(b) Ceases to be captured, disposed of,
or used as a tertiary injectant.
(c) Leaked amount of qualified carbon
oxide.
(d) Recaptured qualified carbon oxide.
(e) Recapture amount.
(f) Recapture period.
(g) Application of recapture.
(1) In general.
(2) Calculation.
(3) Multiple units.
(4) Multiple taxpayers.
(5) Reporting.
(6) Examples.
(i) Example 1.
(ii) Example 2.
(iii) Example 3.
(iv) Example 4.
(v) Example 5.
(vi) Example 6.
(h) Recapture in the event of intention-
al removal from storage.
(i) Limited exceptions.
(j) Applicability date.
§1.45Q-1 Credit for Carbon Oxide
Sequestration.
(a) In general. For purposes of section
38 of the Internal Revenue Code (Code),
the carbon oxide sequestration credit is
determined under section 45Q of the Code
and this section. Generally, the amount of
the section 45Q credit and the party that
is eligible to claim the credit depend on
whether the taxpayer captures qualified
carbon oxide using carbon capture equip-
ment originally placed in service at a qual-
ified facility before February 9, 2018, or
on or after February 9, 2018, and wheth-
er the taxpayer disposes of the qualified
carbon oxide in secure geological storage
without using it as a tertiary injectant in
a qualified enhanced oil or natural gas
recovery project (disposal), uses it as a
tertiary injectant in a qualified enhanced
oil or natural gas recovery project and
disposes of it in secure geological storage
(injection), or utilizes it in a manner de-
scribed in section 45Q(f)(5) and §1.45Q-4
(utilization). The section 45Q credit ap-
plies only with respect to qualified carbon
oxide the capture and disposal, injection,
or utilization of which is within the Unit-
ed States (within the meaning of section
638(1) of the Code) or a possession of the
United States (within the meaning of sec-
tion 638(2)).
(b) Credit amount for carbon capture
equipment originally placed in service be-
fore February 9, 2018. For carbon capture
equipment originally placed in service at a
qualified facility before February 9, 2018,
the amount of credit determined under
section 45Q(a) and this section is the sum
of—
(1) $20 per metric ton of qualified car-
bon oxide that is—
(i) Captured by the taxpayer at the
qualified facility and disposed of by the
taxpayer in secure geological storage, and
(ii) Not used by the taxpayer as a ter-
tiary injectant in a qualified enhanced oil
or natural gas recovery project or utilized
by the taxpayer in a manner described in
section 45Q(f)(5) and §1.45Q-4, and
(2) $10 per metric ton of qualified car-
bon oxide that is —
(i) captured by the taxpayer at the qual-
ified facility and used by the taxpayer as a
tertiary injectant in a qualified enhanced
oil or natural gas recovery project, and
disposed of by the taxpayer in secure geo-
logical storage, or
(ii) captured by the taxpayer at the
qualified facility and utilized by the tax-
payer in a manner described in section
45Q(f)(5) and §1.45Q-4.
(3) Inflation Adjustment. In the case of
any taxable year beginning in a calendar
year after 2009, there is substituted for
each dollar amount contained in para-
graphs (b)(1) and (b)(2) of this section an
amount equal to the product of —
(A) Such dollar amount, multiplied by
(B) The inflation adjustment factor for
such calendar year determined under sec-

July 20, 2020 174 Bulletin No. 2020–30
tion 43(b)(3)(B) for such calendar year,
determined by substituting “2008” for
“1990.”
(c) Credit amount for carbon capture
equipment originally placed in service
on or after February 9, 2018. For carbon
capture equipment originally placed in
service at a qualified facility on or after
February 9, 2018, the amount of credit de-
termined under sections 45Q(a)(3) and (4)
and this section is the sum of—
(1) the applicable dollar amount (as de-
termined under paragraphs (d)(1) and (d)
(2) of this section) per metric ton of qual-
ified carbon oxide that is captured during
the 12-year period beginning on the date
the equipment was originally placed in
service, and is —
(i) Disposed of by the taxpayer in se-
cure geological storage, and
(ii) Not used by the taxpayer as a ter-
tiary injectant in a qualified enhanced oil
or natural gas recovery project or utilized
by the taxpayer in a manner described in
sections 45Q(f)(5) and §1.45Q-4; and
(2) the applicable dollar amount (as de-
termined under paragraphs (d)(3) and (d)
(4) of this section) per metric ton of qual-
ified carbon oxide that is captured during
the 12-year period beginning on the date
the equipment as originally placed in ser-
vice and is —
(i) Used by the taxpayer as a tertiary
injectant in a qualified enhanced oil or nat-
ural gas recovery project and disposed of
by the taxpayer in secure geological stor-
age, or
(ii) Utilized by the taxpayer in a man-
ner described in sections 45Q(f)(5) and
§1.45Q-4.
(d) Applicable dollar amount. In gen-
eral, the applicable dollar amount depends
on whether section 45Q(a)(3) and para-
graph (c)(1) of this section applies or sec-
tion 45Q(a)(4) and paragraph (c)(2) of this
section applies, and whether the taxable
year begins in a calendar year after 2016
and before 2027.
(1) Applicable dollar amount for any
taxable year beginning in a calendar year
after 2016 and before 2027 for qualified
carbon oxide not used as a tertiary in-
jectant or utilized. For purposes of section
45Q(a)(3) and paragraph (c)(1) of this
section, the applicable dollar amount for
each taxable year beginning in a calendar
year after 2016 and before 2027 is:
YearApplicable Dollar Amount
2017$22.66
2018$25.70
2019$28.74
2020$31.77
2021$34.81
2022$37.85
2023$40.89
2024$43.92
2025$46.96
2026$50.00
(2) Applicable dollar amount for any
taxable year beginning in a calendar year
after 2026 for qualified carbon oxide not
used as a tertiary injectant or utilized. For
purposes of section 45Q(a)(3) and para-
graph (c)(1) of this section, the applicable
dollar amount for any taxable year begin-
ning in any calendar year after 2026 is an
amount equal to the product of $50 and
the inflation adjustment factor for the cal-
endar year determined under section 43(b)
(3)(B) for the calendar year, determined
by substituting “2025” for “1990.”
(3) Applicable dollar amount for any
taxable year beginning in a calendar year
after 2016 and before 2027 for qualified
carbon oxide used as a tertiary injectant
or utilized. For purposes of section 45Q(a)
(4) and paragraph (c)(2) of this section,
the applicable dollar amount for each tax-
able year beginning in a calendar year af-
ter 2016 and before 2027 is:
Year
Applicable Dollar Amount
2017$12.83
2018$15.29
2019$17.76
2020$20.22
2021$22.68
2022$25.15
2023$27.61
2024$30.07
2025$32.54
2026$35.00
(4) Applicable dollar amount for any
taxable year beginning in a calendar year
after 2026 for qualified carbon oxide used
as a tertiary injectant or utilized. For pur-
poses of section 45Q(a)(4) and paragraph
(c)(2) of this section, the applicable dollar
amount for any taxable year beginning in
any calendar year after 2026, is an amount
equal to the product of $35 and the infla-
tion adjustment factor for such calendar
year determined under section 43(b)(3)
(B) for such calendar year, determined by
substituting “2025” for “1990.”
(e) Election to apply the $10 and $20
credit amounts in lieu of the applicable
dollar amounts. For purposes of determin-
ing the carbon oxide sequestration credit
under this section, a taxpayer may elect to
have the dollar amounts applicable under
section 45Q(a)(1) or (2) and paragraph (b)
of this section apply in lieu of the dollar
amounts applicable under section 45Q(a)
(3) or (4) and paragraph (d) of this section
for each metric ton of qualified carbon
oxide which is captured by the taxpayer
using carbon capture equipment which is
originally placed in service at a qualified
facility on or after February 9, 2018. The
election must be made on a Form 8933,
Carbon Oxide Sequestration Credit (or
successor forms, or pursuant to instruc-
tions and other guidance), and applies to
all metric tons of qualified carbon oxide
captured by the taxpayer at the qualified
facility throughout the full 12-year credit
period.
(f) Application of section 45Q for cer-
tain carbon capture equipment placed in
service before February 9, 2018. In the
case of any carbon capture equipment
placed in service before February 9, 2018,
the credits under section 45Q(a)(1) and
(a)(2) and paragraphs (b)(1) and (b)(2) of
this section apply with respect to qualified
carbon oxide captured using such equip-
ment before the end of the calendar year in
which the Secretary, in consultation with
the Administrator of the Environmental
Protection Agency (EPA), certifies that,
during the period beginning after Octo-
ber 3, 2008, a total of 75,000,000 metric
tons of qualified carbon oxide have been
taken into account in accordance with
section 45Q(a), as in effect on February
9, 2018, and section 45Q(a)(1) and (2). In
general, a taxpayer may not claim cred-
its under section 45Q(a)(1) and (a)(2) in
taxable years after the year in which the
75,000,000 metric ton limit is reached
with respect to carbon capture equipment
placed in service before February 9, 2018.

Bulletin No. 2020–30 175 July 20, 2020
However, see §1.45Q-2(g)(4) regarding
the election for applicable facilities to
treat certain carbon capture equipment as
having been placed in service on February
9, 2018.
(g) Installation of additional carbon
capture equipment. In general, a facility
that placed carbon capture equipment in
service before February 9, 2018, is en-
titled to the credit amounts for property
placed in service before February 9, 2018,
subject to the limitations under paragraph
(f) of this section. The same facility may
place additional carbon capture equipment
in service on or after February 9, 2018.
The additional carbon capture equipment
is eligible to qualify for the section 45Q
credit amounts for equipment placed in
service on or after February 9, 2018.
(1) Allocation of section 45Q credits
for facilities installing additional carbon
capture equipment. In the case of a quali-
fied facility placed in service before Feb-
ruary 9, 2018, for which additional carbon
capture equipment is placed in service on
or after February 9, 2018, the amount of
qualified carbon oxide which is captured
by the taxpayer is equal to—
(i) For purposes of section 45Q(a)(1)
(A) and (2)(A), and paragraphs (b)(1) and
(b)(2) of this section, the lesser of the total
amount of qualified carbon oxide captured
at such facility for the taxable year, or the
total amount of the carbon dioxide capture
capacity of the carbon capture equipment
in service at such facility on February 8,
2018, and
(ii) For purposes of section 45Q(a)(3)
(A) and (4)(A), and paragraphs (c)(1) and
(c)(2) of this section, an amount (not less
than zero) equal to the excess of the total
amount of qualified carbon oxide captured
at such facility for the taxable year, over
the total amount of the carbon dioxide
capture capacity of the carbon capture
equipment in service at such facility on
February 8, 2018.
(2) Additional carbon capture equip-
ment. A physical modification or equip-
ment addition that results in an increase
in the carbon dioxide capture capacity of
existing carbon capture equipment consti-
tutes the installation of additional carbon
capture equipment. Merely increasing the
amount of carbon dioxide captured by
existing carbon capture equipment, even
if it operated above the carbon dioxide
capture capacity, does not constitute the
installation of additional carbon capture
equipment.
(3) New carbon capture equipment.
The cost of a physical modification or
equipment addition with a cost that sat-
isfies the 80/20 Rule in §1.45Q-2(g)(5)
constitutes the installation of new carbon
capture equipment rather than the instal-
lation of additional carbon capture equip-
ment.
(4) Examples. The following examples
illustrate the rules of this paragraph (g):
(i) Example 1. Taxpayer X owns qualifying fa-
cility QF. In 2017, X placed in service three units
of carbon capture equipment – CC1, CC2, and CC3
– to capture carbon dioxide emitted by QF. Each of
CC1, CC2, and CC3 are capable of capturing 50,000
metric tons of carbon dioxide. In 2017, X enters into
a binding written contract with Y to provide 100,000
metric tons of carbon dioxide annually for Y to dis-
pose of in secure geological storage. X operates CC1
and CC2 to capture carbon dioxide pursuant to the
binding written contract with Y, leaving CC3 idle. In
2020, X enters into a binding written contract with
Z to provide 50,000 metric tons of carbon dioxide
annually for Z to dispose of in secure geological
storage. X operates CC3 to capture carbon dioxide
pursuant to the binding written contract with Z. CC3
is not additional carbon capture equipment under
§1.45Q-1(g)(2). As a result, any section 45Q credits
attributable to the carbon dioxide captured by CC3
and disposed of by Z are calculated under section
45Q(a)(1) and §1.45Q-1(b)(1), and are subject to the
75,000,000 metric ton limitation described in section
45Q(g) and §1.45Q-1(f).
(ii) Example 2. Assume the same facts as in
Example 1, except that in 2019, X makes a physi-
cal modification to upgrade CC3 that results in the
ability of CC3 to capture 100,000 metric tons of car-
bon dioxide. The physical modification to upgrade
CC3 does not satisfy the 80/20 Rule in §1.45Q-2(g)
(5). In 2020 X enters into a binding written contract
with Z to provide 100,000 metric tons of carbon
dioxide annually for Z to dispose of in secure geo-
logical storage. X operates CC3 to capture carbon
dioxide pursuant to the binding written contract with
Z. Because the carbon dioxide capture capacity of
CC3 was 50,000 metric tons of carbon dioxide be-
fore the physical modification and 100,000 metric
tons of carbon dioxide after the physical modifi-
cation, the physical modification to upgrade CC3
is considered the installation of additional carbon
capture equipment under §1.45Q-1(g)(2). As a re-
sult, any section 45Q credits attributable to the first
50,000 metric tons of carbon dioxide captured by
CC3 and disposed of by Z are calculated under sec-
tion 45Q(a)(1) and §1.45Q-1(b)(1), and are subject
to the 75,000,000 metric ton limitation described in
section 45Q(g) and §1.45Q-1(f). Any section 45Q
credits attributable to additional carbon dioxide cap-
tured by CC3 and disposed of by Z in excess of those
first 50,000 metric tons are calculated under section
45Q(a)(4) and §1.45Q-1(c)(2), and are not subject
to the 75,000,000 metric ton limitation described in
section 45Q(g) and §1.45Q-1(f).
(iii) Example 3. Assume the same facts as in
Example 2, except that the physical modification to
upgrade CC3 satisfies the 80/20 Rule in §1.45Q-2(g)
(5). The physical modification to upgrade CC3 is
considered the installation of new carbon capture
equipment under §1.45Q-1(g)(2) and §1.45Q-1(g)
(3). As a result, any section 45Q credits attributable
to carbon dioxide captured by CC3 and disposed
of by Z are calculated under section 45Q(a)(4) and
§1.45Q-1(c)(2), and are not subject to the 75,000,000
metric ton limitation described in section 45Q(g) and
§1.45Q-1(f).
(h) Eligibility for the section 45Q cred-
it. The following rules determine who
may claim the section 45Q credit.
(1) Person to whom the section 45Q
credit is attributable. In general, the per-
son to whom the credit is attributable is
the person who may claim the credit. Ex-
cept as provided in §1.45Q-1(h)(3), the
section 45Q credit is attributable to the
following persons —
(i) Equipment placed in service before
February 9, 2018. In the case of qualified
carbon oxide captured using carbon cap-
ture equipment that is originally placed in
service at a qualified facility before Feb-
ruary 9, 2018, the section 45Q credit is
attributable to the person that captures and
physically or contractually ensures the
disposal, injection, or utilization of such
qualified carbon oxide.
(ii) Equipment placed in service on
or after February 9, 2018. In the case
of qualified carbon oxide captured using
carbon capture equipment that is original-
ly placed in service at a qualified facility
on or after February 9, 2018, the section
45Q credit is attributable to the person that
owns the carbon capture equipment and
physically or contractually ensures the
capture and disposal, injection, or utiliza-
tion of such qualified carbon oxide.
(iii) Reporting. The taxpayer described
in §1.45Q-1(h)(1) as eligible to claim the
section 45Q credit must claim the credit
on a Form 8933 (or successor forms, or
pursuant to instructions and other guid-
ance) with the taxpayer’s Federal income
tax return or Form 1065 for each taxable
year for which the taxpayer is eligible. The
taxpayer must provide the name and loca-
tion of the qualified facilities at which the
qualified carbon oxide was captured. If the
taxpayer is claiming the section 45Q cred-
it on an amended Federal income tax re-
turn, an amended Form 1065, or an AAR,
as applicable, the taxpayer must state
AMENDED RETURN FOR SECTION

July 20, 2020 176 Bulletin No. 2020–30
45Q CREDIT at the top of the amended
Federal income tax return, the amended
Form 1065, or the AAR, as applicable.
In addition, as provided in Revenue Pro-
cedure 2020-23, 2020-18 I.R.B. 749 (see
§601.601(d)(2)(i)(b) and (ii) of this chap-
ter), the exception applies regarding the
time to file an amended return by a BBA
partnership for the 2018 and 2019 taxable
years. The amended Federal income tax
return or the amended Form 1065 must be
filed, in no event, later than the applica-
ble period of limitations on assessment for
the taxable year for which the amended
Federal income tax return or Form 1065 is
being filed. In the case of a BBA partner-
ship that chooses not to file an amended
Form 1065 as permitted under Revenue
Procedure 2020-23, the BBA partnership
may make a late election by filing an AAR
on or before October 15, 2021, but in no
event, later than the applicable period of
limitations on making adjustments under
section 6235 for the reviewed year, as de-
fined in §301.6241-1(a)(8) of the Proce-
dure and Administration Regulations (26
CFR Part 301).
(2) Contractually ensuring disposal,
injection, or utilization of qualified carbon
oxide. A taxpayer is not required to phys-
ically carry out the disposal, injection, or
utilization of qualified carbon oxide to
claim the section 45Q credit if the taxpay-
er contractually ensures in a binding writ-
ten contract that the party that physically
carries out the disposal, injection, or utili-
zation of the qualified carbon oxide does
so in the manner required under section
45Q and these regulations.
(i) Binding written contract. A written
contract is binding only if it is enforceable
under State law against both the taxpayer
and the party that physically carries out
the disposal, injection, or utilization of the
qualified carbon oxide, or a predecessor
or successor of either, and does not limit
damages to a specified amount.
(ii) Multiple binding written contracts
permitted. A taxpayer may enter into mul-
tiple binding written contracts with mul-
tiple parties for the disposal, injection, or
utilization of qualified carbon oxide.
(iii) Contract provisions. Contracts
ensuring the disposal, injection, or utiliza-
tion of qualified carbon oxide —
(A) Must include commercially rea-
sonable terms and provide for enforce-
ment of the party’s obligation to perform
the disposal, injection, or utilization of the
qualified carbon oxide;
(B) May, but are not required to, in-
clude long-term liability provisions, in-
demnity provisions, penalties for breach
of contract, or liquidated damages provi-
sions;
(C) May, but are not required to, in-
clude information including how many
metric tons of qualified carbon oxide the
parties agree to dispose of, inject, or uti-
lize;
(D) May, but are not required to, in-
clude minimum quantities that the parties
agree to dispose of, inject, or utilize;
(E) Must, in the case of qualified carbon
oxide that is intended to be disposed of in
secure geological storage and not used as
a tertiary injectant in a qualified enhanced
oil or natural gas recovery project, obli-
gate the disposing party to comply with
§§1.45Q-3(b)(1) and 1.45Q-3(c), and, in
the case of a recapture event, promptly in-
form the capturing party of all information
that is pertinent to the recapture (i.e., loca-
tion of leak, quantity of qualified carbon
oxide leaked, dollar value of section 45Q
credit attributable to leaked qualified car-
bon oxide) of section 45Q credits as listed
in §1.45Q-5;
(F) Must, for qualified carbon oxide
that is intended to be used as a tertiary in-
jectant in a qualified enhanced oil or nat-
ural gas recovery, obligate the disposing
party to comply with §1.45Q-3(b)(1) or
(2) and §1.45Q-3(c), and in the case of a
recapture event, promptly inform the cap-
turing party of all information that is perti-
nent to recapture of the section 45Q credit
as listed in §1.45Q-5; and
(G) Must, for qualified carbon oxide
that is intended to be utilized in a manner
specified in §1.45Q-4, obligate the utiliz-
ing party to comply with §1.45Q-4.
(iv) Reporting of contract information.
The existence of each contract and the
parties involved must be reported to the
IRS annually on a Form 8933 (or succes-
sor forms, or pursuant to instructions and
other guidance) by each party to the con-
tract, regardless of the party claiming the
credit. In addition to any information stat-
ed as required on Form 8933 (or succes-
sor forms, or pursuant to instructions and
other guidance), the report must include
the following information—
(A) The name and taxpayer identifica-
tion number of the taxpayer to whom the
credit is attributable;
(B) The name and taxpayer identifica-
tion number of each party with whom the
taxpayer has entered into a contract to en-
sure the disposal, injection, or utilization
of qualified carbon oxide;
(C) The number of metric tons of qual-
ified carbon oxide each contracting party
disposes of, injects, or utilizes on behalf of
the contracting taxpayer each taxable year
for reporting to the IRS; and
(D) For contracts for the disposal of
qualified carbon oxide in secure geologi-
cal storage or the use of qualified carbon
oxide as a tertiary injectant in enhanced
oil or natural gas recovery, the name of
the operator, the field, unit, and reservoir,
location by county and state, and identi-
fication number assigned to the facility
by the EPA’s electronic Greenhouse Gas
Reporting Tool (e-GGRT ID number) for
submission of the facility’s 40 CFR Part
98 annual reports.
(v) Relationship with election to allow
section 45Q credit. A taxpayer does not
elect to allow all or a portion of the credit
to any of the contracting parties merely by
contracting with that party to ensure the
disposal, injection, or utilization of qual-
ified carbon oxide. Any election to allow
all or a portion of the credit to be claimed
by another party must be made separately
pursuant to §1.45Q-1(h)(3).
(3) Election to allow the section 45Q
credit to another taxpayer. The taxpayer
described in §1.45Q-1(h)(1) as eligible
to claim section 45Q credits may elect to
allow the person that disposes of the qual-
ified carbon oxide, utilizes the qualified
carbon oxide, or uses the qualified car-
bon oxide as a tertiary injectant to claim
the credit (credit claimant). The taxpayer
that makes the election (electing taxpay-
er) may not claim any section 45Q cred-
its that are allowable to a credit claimant.
An electing taxpayer may elect to allow
a credit claimant to claim the full amount
or a partial amount of section 45Q credits
arising during the taxable year. An elect-
ing taxpayer may elect to allow a single
credit claimant or multiple credit claim-
ants to claim section 45Q credits in the
same taxable year. If an electing taxpayer
elects to allow multiple credit claimants to
claim section 45Q credits, the maximum

Bulletin No. 2020–30 177 July 20, 2020
amount of section 45Q credits allowable
to each credit claimant is proportional
to the amount of qualified carbon oxide
disposed of, utilized, or used as a tertiary
injectant by the credit claimant. A credit
claimant may receive allowances of sec-
tion 45Q credits from multiple electing
taxpayers in the same taxable year.
(i) Example. Electing Taxpayer, E, captures 100
metric tons of qualified carbon oxide with carbon
capture equipment that was placed in service in
2017. E contracts with two companies, A and B, for
the disposal of the qualified carbon oxide. The cap-
ture and disposal of the qualified carbon oxide makes
E eligible for a section 45Q credit at a rate of $10 per
metric ton, for a total section 45Q credit of $1,000. E
contractually ensures that A will dispose of 30 metric
tons of qualified carbon oxide and that B will dis-
pose of 70 metric tons of qualified carbon oxide. E
may make a section 45Q(f)(3)(B) election to allow
up to $300 of section 45Q credit to A and up to $700
of section 45Q credit to B, equal to the value of the
number of metric tons each party has contracted to
ensure disposal, multiplied by the credit value of the
metric tons disposed of.
(ii) Time and manner of making elec-
tion. The taxpayer described §1.45Q-1(h)
(1) makes a section 45Q(f)(3)(B) elec-
tion by filing a statement of election
containing the information described in
§1.45Q-1(h)(3)(iv) with the taxpayer’s
Federal income tax return or Form 1065
for each taxable year in which the credit
arises. The section 45Q(f)(3)(B) election
must be made in accordance with Form
8933 (or successor forms, or pursuant to
instructions and other guidance) no later
than the time prescribed by law (includ-
ing extensions) for filing the Federal in-
come tax return or Form 1065 for the year
in which the credit arises. The election
may not be filed with an amended Fed-
eral income tax return, an amended Form
1065, or an AAR, as applicable, after the
prescribed date (including extensions) for
filing the original Federal income tax re-
turn or Form 1065 for the year, with the
exception of amended Federal income tax
returns, amended Forms 1065, or AARs,
as applicable, for any taxable year ending
after February 9, 2018, but not for taxable
years beginning after the date of issuance
of this proposed regulation. In addition, as
provided in Revenue Procedure 2020-23,
the exception applies regarding the time
to file an amended return by a partnership
subject to the centralized partnership audit
regime enacted as part of the BBA (BBA
partnership) for the 2018 and 2019 taxable
years. The amended Federal income tax
return or the amended Form 1065 must be
filed, in no event, later than the applica-
ble period of limitations on assessment for
the taxable year for which the amended
Federal income tax return or Form 1065 is
being filed. In the case of a BBA partner-
ship that chooses not to file an amended
Form 1065 as permitted under Revenue
Procedure 2020-23, the BBA partnership
may make a late election by filing an AAR
on or before October 15, 2021, but in no
event, later than the applicable period of
limitations on making adjustments under
section 6235 for the reviewed year, as de-
fined in §301.6241-1(a)(8) of the Proce-
dure and Administration Regulations (26
CFR Part 301).
(iii) Annual election. A new section
45Q(f)(3)(B) election must be made an-
nually.
(iv) Required information. For the
election to be valid, the election state-
ment of the electing taxpayer on Form
8933 (or successor forms, or pursuant
to instructions and other guidance) un-
der §1.45Q-1(h)(3)(ii) must indicate that
an election is being made under section
45Q(f)(3)(B). The electing taxpayer must
provide each credit claimant with a copy
of the electing taxpayer’s Form 8933 (or
successor forms, or pursuant to instruc-
tions and other guidance). The electing
taxpayer must, in addition to any infor-
mation required on Form 8933 (or succes-
sor forms, or pursuant to instructions and
other guidance), set forth the following
information—
(A) The electing taxpayer’s name, ad-
dress, taxpayer identification number,
location, and e-GGRT ID number(s) (if
available) of each qualified facility where
carbon oxide was captured;
(B) The full amount of credit attribut-
able to the taxpayer prior to the election;
(C) The name, address, and taxpay-
er identification number of each credit
claimant, and the location and e-GGRT
ID number(s) (if available) of each secure
geological storage facility where the qual-
ified carbon oxide is disposed of or inject-
ed;
(D) The dollar amount of section 45Q
credits the taxpayer is allowing each cred-
it claimant to claim and the corresponding
metric tons of qualified carbon oxide; and
(E) The dollar amount of section 45Q
credits retained by the electing taxpayer
and the corresponding metric tons of qual-
ified carbon oxide.
(v) Requirements for section 45Q cred-
it claimant. For a section 45Q(f)(3)(B)
election to be valid, the section 45Q credit
claimant must include the following infor-
mation on Form 8933 (or successor forms,
or pursuant to instructions and other guid-
ance) with its timely filed Federal income
tax return or Form 1065 (including exten-
sions)—
(A) The name, address, taxpayer iden-
tification number of the credit claimant;
(B) The name, address, and taxpayer
identification number of each taxpayer
making an election under section 45Q(f)
(3)(B) to allow the credit to the credit
claimant;
(C) The location and e-GGRT ID num-
ber(s) (if available) of each qualified facil-
ity where carbon oxide was captured;
(D) The location and e-GGRT ID num-
ber(s) (if available) of each secure geo-
logical storage facility where the qualified
carbon oxide is disposed of or injected;
(E) The full dollar amount of section
45Q credits attributable to each electing
taxpayer prior to the election and the cor-
responding metric tons of carbon oxide;
(F) The dollar amount of section 45Q
credits that each electing taxpayer is al-
lowing the credit claimant to claim and
the corresponding metric tons of carbon
oxide; and
(G) A copy of the electing taxpayer’s
Form 8933 (or successor forms, or pursu-
ant to instructions and other guidance).
(i) Applicability date. This section
applies to taxable years beginning after
[INSERT DATE FINAL REGULA-
TIONS ARE PUBLISHED IN THE
Federal Register]. Taxpayers may
choose to apply this section for taxable
years beginning on or after February 9,
2018, provided the taxpayer applies this
section and §§1.45Q-2, 1.45Q-3, 1.45Q-
4, and 1.45Q-5 in their entirety and in a
consistent manner.
§1.45Q-2 Definitions for Purposes of
§§1.45Q-1 through 1.45Q-5.
(a) Qualified carbon oxide. The term
qualified carbon oxide means—
(1) Any carbon dioxide which—
(i) Is captured from an industrial source
by carbon capture equipment which is

July 20, 2020 178 Bulletin No. 2020–30
originally placed in service before Febru-
ary 9, 2018,
(ii) Would otherwise be released into
the atmosphere as industrial emission of
greenhouse gas or lead to such release,
and
(iii) Is measured at the source of cap-
ture and verified at the point of disposal,
injection, or utilization; or
(2) Any carbon dioxide or other carbon
oxide which—
(i) Is captured from an industrial source
by carbon capture equipment which is
originally placed in service on or after
February 9, 2018,
(ii) Would otherwise be released into
the atmosphere as industrial emission of
greenhouse gas or lead to such release,
and
(iii) Is measured at the source of cap-
ture and verified at the point of disposal,
injection, or utilization; or
(3) In the case of a direct air capture
facility, any carbon dioxide that is cap-
tured directly from the ambient air and
is measured at the source of capture and
verified at the point of disposal, injection,
or utilization.
(b) Recycled carbon oxide. The term
qualified carbon oxide includes the initial
deposit of captured carbon oxide used as a
tertiary injectant. Qualified carbon oxide
does not include carbon oxide that is re-
captured, recycled, and re-injected as part
of the enhanced oil or natural gas recovery
process.
(c) Carbon capture equipment. In gen-
eral, carbon capture equipment includes
all components of property that are used to
capture or process carbon oxide until the
carbon oxide is transported for disposal,
injection, or utilization.
(1) Use of carbon capture equipment.
Carbon capture equipment is equipment
used for the purpose of—
(i) Separating, purifying, drying, and/
or capturing carbon oxide that would oth-
erwise be released into the atmosphere
from an industrial facility;
(ii) Removing carbon oxide from the
atmosphere via direct air capture; or
(iii) Compressing or otherwise increas-
ing the pressure of carbon oxide.
(2) Carbon capture equipment compo-
nents. Carbon capture equipment generally
includes components of property neces-
sary to compress, treat, process, liquefy,
pump or perform some other physical ac-
tion to capture qualified carbon oxide.
Components of carbon capture equipment
include, but are not limited to, absorbers,
compressors, conditioners, cooling tow-
ers, dehydration equipment, dehydration
systems, electrostatic filtration, engines,
filters, fixtures, glycol contractors, heat
exchangers, liquefaction equipment, lube
oil systems, machinery, materials, mem-
branes, meters, monitoring equipment,
motors, mounting equipment, pipes, pow-
er generators and regenerators, pressure
vessels and other vessels, processing equip-
ment, processing plants, processing units,
pumps, reboilers, recycling units, scrub-
bers, separation vessels, solvent pumps,
sorbent vessels, specially designed flue gas
ducts, support structures, tracking equip-
ment, treating equipment, turbines, water
wash equipment, and other carbon oxide
related equipment.
(3) Excluded components. Components
of carbon capture equipment do not in-
clude pipelines, branch lines, or land and
marine transport vessels used for trans-
porting captured qualified carbon oxide
for disposal, injection, or utilization. How-
ever, a gathering and distribution system
that collects carbon oxide captured from a
qualified facility or multiple facilities that
constitute a single project (as described in
section 8.01 of Notice 2020-12, 2020-11
I.R.B. 495 (see §601.601(d)(2)(ii) of this
chapter)) for the purpose of transporting
that carbon oxide away from the qualified
facility or single project to a pipeline used
to transport carbon oxide from multiple
taxpayers or projects is carbon capture
equipment.
(d) Industrial facility. An industrial
facility is a facility that produces a car-
bon oxide stream from a fuel combustion
source or fuel cell, a manufacturing pro-
cess, or a fugitive carbon oxide emission
source that, absent capture and disposal,
would otherwise be released into the at-
mosphere as industrial emission of green-
house gas or lead to such release.
(1) Exclusion. An industrial facility
does not include a facility that produc-
es carbon dioxide from carbon dioxide
production wells at natural carbon di-
oxide-bearing formations or a naturally
occurring subsurface spring. A deposit
of natural gas that contains less than 10
percent carbon dioxide by volume is not
a natural carbon dioxide-bearing forma-
tion. For other deposits, whether a well
is producing from a natural carbon diox-
ide-bearing formation is based on all the
facts and circumstances.
(2) Industrial source. An industrial
source is an emission of carbon oxide
from an industrial facility.
(3) Manufacturing process. A manu-
facturing process is a process involving
the manufacture of products, other than
carbon oxide, that are intended to be sold
at a profit, or are used for a commercial
purpose. All facts and circumstances with
respect to the process and products are to
be taken into account.
(4) Example. The following example
illustrates the rules of paragraph (a) and
(d)(3) of this section:
(i) A natural underground reservoir con-
tains a gas that is comprised of 50 percent
carbon dioxide and 50 percent methane by
volume. The raw gas is not usable with-
out the application of a separation pro-
cess to create two gases that are primarily
carbon dioxide and methane. Taxpayer B
constructs processing equipment that sep-
arates the raw gas into qualified carbon
oxide and methane. The carbon dioxide is
sold to a third party for use in a qualified
enhanced oil recovery project. Some of
the methane is used as fuel to power the
processing equipment. The remainder of
the methane is injected into the reservoir.
The injection will increase the ultimate
recovery of carbon dioxide. The injected
methane can be produced later from the
reservoir. At the end of the taxable year
the taxpayer has not secured a contract to
sell methane and does not have any plans
to use the methane for a commercial pur-
pose. Because carbon dioxide is the only
product manufactured that is intended to
be sold at a profit or used for a commercial
purpose, the separation process applied to
the gases is not a manufacturing process
within the meaning of paragraph (d)(3).
The carbon dioxide captured by the pro-
cess is not qualified carbon oxide.
(e) Electricity generating facility. An
electricity generating facility is a facility
described in section 45Q(d)(2)(A) or (B)
of the Internal Revenue Code (Code) and
is subject to depreciation under MACRS
Asset Class 49.11(Electric Utility Hy-
draulic Production Plant), 49.12 (Electric
Utility Nuclear Production Plant), 49.13

Bulletin No. 2020–30 179 July 20, 2020
(Electric Utility Steam Production Plant),
or 49.15 (Electric Utility Combustion Tur-
bine Production Plant).
(f) Direct air capture facility. A direct
air capture facility means any facility that
uses carbon capture equipment to capture
carbon oxide directly from the ambient
air. It does not include any facility that
captures carbon dioxide (1) that is delib-
erately released from naturally occurring
subsurface springs or (2) using natural
photosynthesis.
(g) Qualified facility. A qualified facil-
ity means any industrial facility, electric-
ity generating facility, or direct air cap-
ture facility, the construction of which
begins before January 1, 2024, and either
at which construction of carbon capture
equipment begins before that date, or the
original planning and design for which
includes installation of carbon capture
equipment, and at which carbon capture
equipment is placed in service that cap-
tures the requisite annual thresholds of
carbon oxide described in paragraph (g)
(1) of this section. See Notice 2020-12,
2020-11 I.R.B. 495 (see §601.601(d)(2)
(ii) of this chapter), for guidance on the
determination of when construction has
begun on a qualified facility or on carbon
capture equipment.
(1) Emissions and capture require-
ments. The facility must capture—
(i) In the case of a facility, other than
a direct air capture facility, which emits
not more than 500,000 metric tons of
carbon oxide into the atmosphere during
the taxable year, at least 25,000 metric
tons of qualified carbon oxide during the
taxable year which is utilized in a man-
ner consistent with section 45Q(f)(5) and
§1.45Q-4 (Section 45Q(d)(2)(A) Facility);
(ii) In the case of an electricity
generating facility which is not a Section
45Q(d)(2)(A) Facility (Section 45Q(d)(2)
(B) Facility), not less than 500,000 metric
tons of qualified carbon during the taxable
year; and
(iii) In the case of a direct air capture
facility or other facility that is not a Sec-
tion 45Q(d)(2)(A) Facility or a Section
45Q(d)(2)(B) Facility, at least 100,000
metric tons of qualified carbon oxide
during the taxable year.
(2) Examples. The following examples
illustrate the rules of paragraph (g) of this
section:
(i) Example 1. During the taxable year, an eth-
anol plant emits 200,000 metric tons of carbon di-
oxide. Equipment located at the facility captures
35,000 metric tons of carbon dioxide, all of which
are utilized in a manner consistent with section
45Q(f)(5) and §1.45Q-4. The ethanol plant is a qual-
ified facility during the taxable year because it met
the requirement to capture at least 25,000 metric tons
of qualified carbon oxide during the taxable year
which were utilized in a manner consistent with sec-
tion 45Q(f)(5) and §1.45Q-4.
(ii) Example 2. During the taxable year an elec-
tricity generating facility emits 600,000 metric tons
of carbon dioxide. Equipment located at the facility
captures 50,000 metric tons of carbon dioxide, all of
which are utilized in a manner consistent with section
45Q(f)(5) and §1.45Q-4, and 400,000 metric tons of
carbon dioxide, all of which are properly disposed
of in secure geological storage. The total amount of
carbon dioxide captured during the taxable year is
450,000 metric tons. The electricity generating facil-
ity is not a qualified facility during the taxable year
because it did not meet the requirement to capture
not less than 500,000 metric tons of qualified carbon
during the taxable year.
(iii) Example 3. During the taxable year, a ce-
ment manufacturing plant emits 110,000 metric tons
of carbon dioxide. Equipment located at the plant
captures 10,000 metric tons of carbon dioxide, all of
which are utilized in a manner consistent with sec-
tion 45Q(f)(5) and §1.45Q-4, and 90,000 metric tons
of carbon dioxide, all of which are properly disposed
of in secure geological storage. The total amount
of carbon dioxide captured during the taxable year
is 100,000 metric tons. The cement manufacturing
plant is a qualified facility during the taxable year
because it met the requirement to capture at least
100,000 metric tons of qualified carbon oxide during
the taxable year.
(3) Annualization of first-year quali-
fied carbon oxide emission and capture
amounts—(i) In general. For the year in
which carbon capture equipment is placed
in service at a qualified facility, annual-
ization of the amount of qualified carbon
oxide emitted and captured is permitted to
determine if the threshold requirements
under paragraph (g)(1) of this section are
satisfied. Such annualization may result
in a facility being deemed to satisfy the
threshold requirements under paragraph
(g)(1) of this section for the year and may
permit a taxpayer to claim section 45Q
credits even though the amount of quali-
fied carbon oxide emitted or captured in
its first year is less than the threshold re-
quirements under paragraph (g)(1) of this
section.
(ii) Calculation. Annualization is only
be available for the first year in which the
carbon capture equipment is placed in ser-
vice at the qualified facility. Annualized
amounts must be calculated by –
(A) Determining the amount of qual-
ified carbon oxide emitted and captured
during the taxable year in which the car-
bon capture equipment was placed in ser-
vice at the qualified facility,
(B) Dividing the amount of qualified
carbon emitted or captured by the number
of days in the tax year beginning with the
date on which the carbon capture equip-
ment was placed in service at the qualified
facility and ending with the last day of the
taxable year; and
(C) Multiplying by 365.
(iii) Consequences. If the annualized
amounts of qualified carbon oxide emit-
ted and captured as calculated under this
formula meet the threshold requirements
under paragraph (g)(1) of this section, the
threshold requirements under paragraph
(g)(1) of this section are deemed satisfied
for the taxable year in which the carbon
capture equipment was placed in service
at the qualified facility. The taxpayer may
be eligible for a section 45Q credit for that
taxable year but must calculate the credit
based on actual amounts of qualified car-
bon oxide captured and disposed of, in-
jected, or utilized during the taxable year.
(4) Election for applicable facilities.
In the case of an applicable facility, for
any taxable year during which such facil-
ity captures not less than 500,000 metric
tons of qualified carbon oxide, the person
described in section 45Q(f)(3)(A)(ii) and
§1.45Q-1(h)(1), may elect to have such
facility, and any carbon capture equipment
placed in service at such facility, deemed
as having been placed in service on Feb-
ruary 9, 2018 (section 45Q(f)(6) election).
(i) Applicable facility. An applicable fa-
cility means a qualified facility described
in section 45Q(f)(6) and §1.45Q-2(g)(4)(i)
that was placed in service before February
9, 2018, for which no taxpayer claimed a
section 45Q credit for qualified carbon ox-
ide captured at the facility for any taxable
year ending before February 9, 2018.
(ii) Time and manner of making elec-
tion. The taxpayer described §1.45Q-1(h)
(1) makes a section 45Q(f)(6) election by
filing a statement of election with the tax-
payer’s income tax return for each taxable
year in which the credit arises. The sec-
tion 45Q(f)(6) election must be made in
accordance with Form 8933 (or successor
forms, or pursuant to instructions and oth-
er guidance) with the taxpayer’s income

July 20, 2020 180 Bulletin No. 2020–30
tax return for the taxable year in which
the taxpayer makes the section 45Q(f)(6)
election. The statement of election must,
in addition to any information required on
Form 8933 (or successor forms, or pur-
suant to instructions and other guidance),
set forth the electing taxpayer’s name,
address, taxpayer identification number,
location, and e-GGRT ID number(s) (if
available) of the applicable facility.
(iii) Retroactive credit revocations. A
taxpayer may not file an amended Feder-
al income tax return, an amended Form
1065, or an AAR, as applicable, for any
taxable year ending before February 9,
2018, to revoke a prior claim of section
45Q credits.
(5) Retrofitted qualified facility or car-
bon capture equipment (80/20 Rule). A
qualified facility or carbon capture equip-
ment may qualify as originally placed
in service even if it contains some used
components of property, provided the fair
market value of the used components of
property is not more than 20 percent of the
qualified facility or carbon capture equip-
ment’s total value (the cost of the new
components of property plus the value of
the used components of property) (80/20
Rule). For purposes of the 80/20 Rule, the
cost of a new qualified facility or carbon
capture equipment includes all properly
capitalized costs of the new qualified fa-
cility or carbon capture equipment. Solely
for purposes of the 80/20 Rule, properly
capitalized costs of a new qualified facil-
ity or carbon capture equipment may, at
the option of the taxpayer, include the cost
of new equipment for a pipeline owned
and used exclusively by that taxpayer to
transport carbon oxides captured from that
taxpayer’s qualified facility that would
otherwise be emitted into the atmosphere.
(h) Qualified enhanced oil or natural
gas recovery project. The term qualified
enhanced oil or natural gas recovery proj-
ect has the same meaning as qualified en-
hanced oil recovery project under section
43(c)(2) of the Code and §1.43-2, by sub-
stituting crude oil or natural gas for crude
oil in section 43(c)(2)(A)(i) and §§1.43-2
and 1.43-3.
(1) Application of §§1.43-2 and 1.43-
3. For purposes of applying §§1.43-2
and 1.43-3 with respect to a qualified en-
hanced oil or natural gas recovery proj-
ect, the term enhanced oil or natural gas
recovery is substituted for enhanced oil
recovery, and the term oil or natural gas is
substituted for oil.
(2) Required certification. The quali-
fied enhanced oil or natural gas recovery
project must be certified under §1.43-3.
For purposes of a natural gas project—
(i) The petroleum engineer’s certifi-
cation under §1.43-3(a)(3) and the oper-
ator’s continued certification of a project
under §1.43-3(b)(3) must include an addi-
tional statement that the certification is for
purposes of the section 45Q carbon oxide
sequestration tax credit;
(ii) The petroleum engineer’s certifica-
tion must be attached to a Form 8933 (or
successor forms, or pursuant to instruc-
tions and other guidance) and filed not
later than the last date prescribed by law
(including extensions) for filing the oper-
ator’s or designated owner’s Federal in-
come tax return or Form 1065 for the first
taxable year in which qualified carbon ox-
ide is injected into the reservoir; and
(iii) The operator’s continued certifi-
cation of a project must be attached to a
Form 8933 (or successor forms, or pur-
suant to instructions and other guidance)
and filed not later than the last date pre-
scribed by law (including extensions) for
filing the operator’s or designated owner’s
Federal income tax return or Form 1065
for taxable years after the taxable year for
which the petroleum engineer’s certifica-
tion is filed but not after the taxable year in
which injection activity ceases and all in-
jection wells are plugged and abandoned.
(3) Natural gas. Natural gas has the
same meaning as under section 613A(e)
(2) of the Code.
(4) Timely filing of petroleum engi-
neer’s certification. For purposes of this
paragraph (h), if a section 45Q credit is
claimed on an amended Federal income
tax return, an amended Form 1065, or an
AAR, as applicable, the petroleum engi-
neer’s certification will be treated as filed
timely if it is attached to a Form 8933 that
is submitted with such amended Federal
income tax return, amended Form 1065,
or AAR. With respect to a section 45Q
credit that is claimed on a timely filed
Federal income tax return or Form 1065
for a taxable year ending after February
9, 2018 and beginning before the date of
issuance of this proposed regulation, for
which the petroleum engineer’s certifi-
cation was not submitted the petroleum
engineer’s certification will be treated as
filed timely if it is attached to an amend-
ed Form 8933 for any taxable year ending
after February 9, 2018, but not for taxable
years beginning after the date of issuance
of these proposed regulations.
(5) Carbon oxide injected in oil res-
ervoir. Carbon oxide that is injected into
an oil reservoir that is not a qualified en-
hanced oil recovery project under section
43(c)(2) due to circumstances such as the
first injection of a tertiary injectant occur-
ring before 1991, or because a petroleum
engineer’s certification was not timely
filed, cannot be treated as qualified carbon
oxide, disposed of in secure geological
storage, or utilized in a manner described
in section 45Q(f)(5). This rule will not ap-
ply to an oil reservoir if—
(i) The reservoir permanently ceased
oil production;
(ii) The operator has obtained an EPA
UIC class VI permit; and
(iii) The operator complies with 40
CFR Part 98 subpart RR.
(6) Tertiary Injectant. For purposes of
section 45Q, a tertiary injectant is quali-
fied carbon oxide that is injected into and
stored in a qualified enhanced oil or natu-
ral gas recovery project and contributes to
the extraction of crude oil or natural gas.
The term tertiary injectant has the same
meaning as used within section 193(b)(1)
of the Code.
(i) Section 45Q credit. The term sec-
tion 45Q credit means the carbon oxide
sequestration credit determined under
section 45Q of the Internal Revenue Code
and §1.45Q-1.
(j) Applicability date. This section ap-
plies to taxable years beginning after [IN-
SERT DATE FINAL REGULATIONS
ARE PUBLISHED IN THE Federal
Register.] Taxpayers may choose to apply
this section for taxable years beginning
on or after February 9, 2018, provided the
taxpayer applies this section and §§1.45Q-
1, 1.45Q-3, 1.45Q-4, and 1.45Q-5 in their
entirety and in a consistent manner.
§1.45Q-3 Secure Geological Storage.
(a) In general. To qualify for the sec-
tion 45Q credit, a taxpayer must either
physically or contractually dispose of
captured qualified carbon oxide in secure

Bulletin No. 2020–30 181 July 20, 2020
geological storage in the manner provided
in §1.45Q-3(b) or utilize qualified carbon
oxide in a manner conforming with sec-
tion 45Q(f)(5) of the Internal Revenue
Code and §1.45Q-4. Secure geological
storage includes, but is not limited to, stor-
age at deep saline formations, oil and gas
reservoirs, and unminable coal seams.
(b) Requirements for secure geological
storage. For purposes of the section 45Q
credit, qualified carbon oxide is consid-
ered disposed of by the taxpayer in secure
geological storage such that the qualified
carbon oxide does not escape into the at-
mosphere if the qualified carbon oxide
is—
(1) Stored, and not used as a tertiary
injectant in a qualified enhanced oil or
natural gas recovery project, in compli-
ance with applicable requirements under
40 CFR Part 98 subpart RR; or
(2) Used as a tertiary injectant in a
qualified enhanced oil or natural gas re-
covery project and stored in compliance
with applicable requirements under 40
CFR Part 98 subpart RR, or the Interna-
tional Organization for Standardization
(ISO) standards endorsed by the American
National Standards Institute (ANSI) under
CSA/ANSI ISO 27916:19, Carbon diox-
ide capture, transportation and geological
storage – Carbon dioxide storage using
enhanced oil recovery (CO
2
-EOR).
(3) Injected into a well that complies
with applicable Underground Injection
Control regulations onshore or offshore
under submerged lands within the territo-
rial jurisdiction of States.
(c) Documentation. Documentation
must be filed in accordance with Form
8933 (or successor forms, or pursuant to
instructions and other guidance).
(d) Certification. For qualified en-
hanced oil or natural gas recovery projects
in which the taxpayer reported volumes
of carbon oxide to the EPA pursuant to
40 CFR Part 98 subpart RR, the taxpayer
may self-certify the volume of carbon ox-
ide claimed for purposes of section 45Q.
For qualified enhanced oil or natural gas
recovery projects in which the taxpayer
determined volumes pursuant to CSA/
ANSI ISO 27916:19, a taxpayer may pre-
pare documentation as outlined in CSA/
ANSI 27916:19 internally, but such docu-
mentation must be provided to a qualified
independent engineer or geologist, who
then must certify that the documentation
provided, including the mass balance cal-
culations as well as information regarding
monitoring and containment assurance,
is accurate and complete. Certifications
must be made annually. For any leaked
amount of qualified carbon oxide (as de-
fined in §1.45Q-5(c)) that is determined
pursuant to CSA/ANSI ISO 27916:19, the
certification must also include a statement
that the quantity was determined in accor-
dance with sound engineering principles.
Taxpayers that capture qualified carbon
oxide giving rise to the section 45Q credit
must file Form 8933 (or successor forms,
or pursuant to instructions and other guid-
ance) with a timely filed Federal income
tax return or Form 1065, including ex-
tensions or for the purpose of this rule,
amendments to Federal income tax returns,
Forms 1065, or on AARs, as applicable.
Taxpayers that dispose of, inject, or utilize
qualified carbon oxide must also file Form
8933 (or successor forms, or pursuant to
instructions and other guidance) with a
timely filed Federal income tax return or
Form 1065, including extensions or for
the purpose of this rule, amendments to
Federal income tax returns, Forms 1065,
or on AARs, as applicable. If the volume
of carbon oxide certified and reported is a
negative amount, see §1.45Q-5 for rules
regarding recapture.
(e) Failure to submit complete doc-
umentation or certification. No section
45Q credit is allowed for any taxable year
for which the taxpayer (including cred-
it claimants) has failed to timely submit
complete documentation and certification
that is required by this regulation or Form
8933 (or successor forms, or pursuant
to instructions and other guidance). The
credit will be allowed only for a taxable
year for which complete documentation
and certification has been timely sub-
mitted. Certifications for each taxable
year must be submitted by the due date
of the federal income tax return or Form
1065 on which the section 45Q credit is
claimed, including extensions. If a sec-
tion 45Q credit is claimed on an amended
Federal income tax return, an amended
Form 1065, or an AAR, as applicable,
certifications may also be submitted with
such amended Federal income tax return,
amended Form 1065, or AAR. If a section
45Q credit was claimed on a timely filed
Federal income tax return or Form 1065
for a taxable year ending after February
9, 2018, and beginning before the date of
issuance of this proposed regulation, for
which certifications were not submitted,
such certifications may be submitted with
an amended Federal income tax return, an
amended Form 1065, or an AAR, as ap-
plicable, for the taxable year in which the
section 45Q credit was claimed.
(f) Applicability date. This section ap-
plies to taxable years beginning after [IN-
SERT DATE FINAL REGULATIONS
ARE PUBLISHED IN THE Federal
Register.] Taxpayers may choose to apply
this section for taxable years beginning
on or after February 9, 2018, provided the
taxpayer applies this section and §§1.45Q-
1, 1.45Q-2, 1.45Q-4, and 1.45Q-5 in their
entirety and in a consistent manner.
§1.45Q-4 Utilization of Qualified Carbon
Oxide.
(a) In general. For purposes of this sec-
tion, utilization of qualified carbon oxide
means—
(1) The fixation of qualified carbon
oxide through photosynthesis or chemo-
synthesis, such as through the growing of
algae or bacteria,
(2) The chemical conversion of such
qualified carbon oxide to a material or
chemical compound in which such quali-
fied carbon oxide is securely stored, or
(3) The use of such qualified carbon
oxide for any other purpose for which a
commercial market exists (with the excep-
tion of use as a tertiary injectant in a qual-
ified enhanced oil or natural gas recovery
project), as determined by the Secretary of
the Treasury or his delegate.
(b) Measurement. For purposes of
determining the amount of qualified car-
bon oxide utilized by the taxpayer under
§1.45Q-1(b)(2)(ii) and (c)(2)(ii), such
amount is equal to the metric tons of
qualified carbon oxide which the taxpay-
er demonstrates, based upon an analysis
of lifecycle greenhouse gas emissions
(LCA), were—
(1) Captured and permanently isolated
from the atmosphere (isolated), or
(2) Displaced from being emitted into
the atmosphere through use of a process
described in paragraph (a) of this section
(displaced).

July 20, 2020 182 Bulletin No. 2020–30
(c) Lifecycle greenhouse gas emissions
and lifecycle analysis—(1) In general.
For purposes of paragraph (b) of this sec-
tion, the term lifecycle greenhouse gas
emissions means the aggregate quantity
of greenhouse gas emissions (including
direct emissions and significant indirect
emissions such as significant emissions
from land use changes) related to the full
product lifecycle, including all stages of
product and feedstock production and
distribution, from feedstock generation
or extraction through the distribution and
delivery and use of the finished product
to the ultimate consumer, where the mass
values for all greenhouse gases are ad-
justed to account for their relative global
warming potential according to Table A-1
of 40 CFR Part 98 subpart A.
(2) Measurement. The taxpayer mea-
sures the amount of carbon oxide captured
and utilized through a combination of
direct measurement and LCA. The mea-
surement and written LCA report must be
performed by or verified by an indepen-
dent third-party. The report must contain
documentation consistent with the Inter-
national Organization for Standardization
(ISO) 14044:2006, “Environmental man-
agement — Life cycle assessment — Re-
quirements and Guidelines,” as well as a
statement documenting the qualifications
of the third-party, including proof of ap-
propriate U.S. or foreign professional li-
cense, and an affidavit from the third-par-
ty stating that it is independent from the
taxpayer.
(3) Approval of the LCA. The taxpayer
must submit the written LCA report re-
quired by paragraph (c)(1) of this section
to the IRS and the Department of Energy
(DOE). The LCA will be subject to a tech-
nical review by the DOE, and the IRS, in
consultation with the DOE and the Envi-
ronmental Protection Agency, will deter-
mine whether to approve the LCA.
(4) Submission of the LCA. [Reserved].
(d) Commercial market. [Reserved].
(e) Standards of adequate lifecycle
analysis. [Reserved].
(f) Applicability date. This section ap-
plies to taxable years beginning after [IN-
SERT DATE FINAL REGULATIONS
ARE PUBLISHED IN THE Federal
Register.] Taxpayers may choose to apply
this section for taxable years beginning
on or after February 9, 2018, provided the
taxpayer applies this section and §§1.45Q-
1, 1.45Q-2, 1.45Q-3, and 1.45Q-5 in their
entirety and in a consistent manner.
§1.45Q-5 Recapture of Credit.
(a) Recapture event. A recapture event
occurs when qualified carbon oxide for
which a section 45Q credit has been
claimed ceases to be captured, disposed
of, or used as a tertiary injectant during
the recapture period. Recapture events are
determined separately for each project in-
volving capture, disposal, or use of qual-
ified carbon oxide as a tertiary injectant.
(b) Ceases to be captured, disposed of,
or used as a tertiary injectant. Qualified
carbon oxide ceases to be captured, dis-
posed of, or used as a tertiary injectant
if the leaked amount of qualified carbon
oxide in the taxable year exceeds the
amount of qualified carbon oxide dis-
posed of in secure geological storage or
used as a tertiary injectant in that same
taxable year.
(c) Leaked amount of qualified car-
bon oxide. When a taxpayer, operator,
or regulatory agency determines that
qualified carbon oxide has leaked to the
atmosphere, the taxpayer must quantify
the metric tons of qualified carbon oxide
that has leaked to the atmosphere pursu-
ant to the requirements of 40 CFR Part 98
subpart RR or CSA/ANSI ISO 27916:19.
The quantity determined pursuant to
CSA/ANSI ISO 27916:19 must be certi-
fied by a qualified independent engineer
or geologist, including a statement that
the quantity was determined in accor-
dance with sound engineering principles.
The Internal Revenue Service will con-
sider all available facts, and may consult
with the relevant regulatory agency, in
verifying the amount of qualified carbon
oxide that has leaked to the atmosphere.
That amount is the leaked amount of
qualified carbon oxide.
(d) Recaptured qualified carbon oxide.
The quantity of recaptured qualified car-
bon oxide (in metric tons) is the amount
by which the leaked amount of qualified
carbon oxide exceeds the amount of qual-
ified carbon oxide disposed of in secure
geological storage or used as a tertiary in-
jectant in the taxable year.
(e) Recapture amount. The recapture
amount is equal to the product of the
quantity of recaptured qualified carbon
oxide (in metric tons) and the appropriate
statutory credit rate.
(f) Recapture period. The recapture pe-
riod begins on the date of first injection of
qualified carbon oxide for disposal in se-
cure geological storage or use as a tertiary
injectant. The recapture period ends on
the earlier of five years after the last tax-
able year in which the taxpayer claimed a
section 45Q credit or the date monitoring
ends under the requirements of the stan-
dards described in §1.45Q-3(b)(1) or (b)
(2).
(g) Application of recapture.
(1) In general. Any recapture amount
must be taken into account in the taxable
year in which it is identified and reported.
If the leaked amount of qualified carbon
oxide does not exceed the amount of qual-
ified carbon oxide disposed of in secure
geological storage or used as a tertiary in-
jectant in the taxable year reported, there
is no recapture amount and no further ad-
justments to prior taxable years are need-
ed. The taxpayer must add the recapture
amount to the amount of tax due in the
taxable year in which the recapture event
occurs.
(2) Calculation. Recapture amounts
are to be calculated on a last-in-first-out
basis (LIFO), such that the leaked amount
of qualified carbon oxide that exceeds the
amount of qualified carbon oxide disposed
of in secure geological storage or used as
a tertiary injectant in the current taxable
year will be deemed attributable first to
the prior taxable year, then to taxable year
before that, and then up to a maximum of
the fifth preceding year.
(3) Multiple Units. In the event of a
recapture event in which the leaked qual-
ified carbon oxide had been captured
from multiple units of carbon capture
equipment that were not under common
ownership, the recapture amount must
be allocated on a pro rata basis among
the multiple units of carbon capture
equipment. Each taxpayer that claimed
a section 45Q credit with respect to one
or more of such units of carbon capture
equipment is responsible for adding the
recapture amount to their amount of tax
due in the taxable year in which the re-
capture event occurs.
(4) Multiple Taxpayers. In the event of
a recapture event where the leaked amount

Bulletin No. 2020–30 183 July 20, 2020
of qualified carbon oxide is deemed attrib-
utable to qualified carbon oxide with re-
spect to which multiple taxpayers claimed
section 45Q credit amounts (for example,
if ownership of the carbon capture equip-
ment was transferred, or if a taxpayer
made an election under section 45Q(f)(3)
(B) of the Internal Revenue Code to al-
low one or more credit claimants to claim
a portion of the section 45Q credit), the
recapture amount must be allocated on a
pro rata basis among the taxpayers that
claimed the section 45Q credits with re-
spect to the qualified carbon oxide that the
leaked qualified carbon oxide is deemed
attributable to.
(5) Reporting. If a recapture event oc-
curs during a project’s recapture period,
any taxpayer that claimed a section 45Q
credit for that project must report the fol-
lowing information on a Form 8933 (or
successor forms, or pursuant to instruc-
tions and other guidance) filed with that
taxpayer’s Federal income tax return or
Form 1065 for the taxable year for which
the recapture event occurred—
(A) The recapture amount (as defined
in §1.45Q-5(e));
(B) The quantity of leaked qualified
carbon oxide (in metric tons) (as defined
in §1.45Q-5(c));
(C) The statutory credit rate at which
the section 45Q credits were originally
calculated; and
(D) A statement that describes how the
taxpayer became aware of the recapture
event, how the leaked amount was deter-
mined, and the identity and involvement
of any regulatory agencies.
(6) Examples. The following examples
illustrate the principles of this paragraph
(g):
(i) Example 1. (A) A owns direct air capture Fa-
cility X. No other taxpayer has owned Facility X,
and A has never allowed another taxpayer to claim
any section 45Q credits with respect to qualified
carbon oxide captured by Facility X. Facility X
captured 100,000 metric tons of carbon dioxide in
each of 2021, 2022, and 2023. All captured carbon
dioxide was sold to B for use a tertiary injectant in
a qualified enhanced oil recovery project. B pro-
vided contractual assurance that the carbon dioxide
would be sequestered in secure geological storage.
A claimed section 45Q credit amounts of $2,268,000
in 2021, $2,515,000 in 2022, and $2,761,000 in 2023
using the statutory rates in §1.45Q-1(d)(3). In 2024,
A captured and sold another 100,000 metric tons of
carbon dioxide to B, which B used as a tertiary in-
jectant in a qualified enhanced oil recovery project.
In late 2024, B determined that 10,000 metric tons
of carbon dioxide injected during 2021 had leaked
from the containment area of the reservoir and will
eventually migrate to the atmosphere.
(B) Because the leakage determined in 2024
(10,000 metric tons) did not exceed the amount
stored in 2024 (100,000 metric tons), a recapture
event did not occur in 2024. A’s section 45Q credit
for 2024 is $2,706,300 (net 90,000 metric tons of
qualified carbon oxide captured and used as a tertia-
ry injectant multiplied by the statutory credit rate for
2024 of $30.07).
(ii) Example 2. (A) Assume same facts as in Ex-
ample 1. Additionally, in 2025, B determines that
190,000 metric tons of carbon dioxide injected in
2021 and 2022 have leaked and will eventually mi-
grate to the atmosphere. No injection of carbon diox-
ide takes place in 2025.
(B) Because the leakage determined in 2025
(190,000 metric tons) exceeds the amount stored
in 2025 (0 metric tons), a recapture event occurred
in 2025. A’s credit for 2025 is $0 because the net
amount of carbon dioxide captured and used as a ter-
tiary injectant in 2025 was 0 metric tons. The 2025
recapture amount is calculated by multiplying the
190,000 metric tons of recaptured qualified carbon
oxide by the appropriate statutory credit rate using
the LIFO method. The first 90,000 metric tons of
recaptured qualified carbon oxide is deemed attrib-
utable to 2024, and is recaptured at the 2024 stat-
utory rate of $30.07 per metric ton. The remaining
100,000 metric tons of recaptured qualified carbon
oxide are deemed attributable to 2023. The credits
attributable to 2023 are recaptured at the 2023 stat-
utory rate of $27.61 per metric ton. Thus, the total
recapture amount is $5,467,300, and is added to A’s
tax due for 2025.
(iii) Example 3. (A) Assume the same facts as
in Example 2, except that A sells Facility X to C on
January 1, 2024. C sells 100,000 metric tons of car-
bon dioxide captured by Facility X to B for use as a
tertiary injectant in a qualified enhanced oil recovery
project. Thus, C claims a section 45Q credit in 2024
of $2,706,300 (net 90,000 metric tons of qualified
carbon oxide captured and used as a tertiary injectant
multiplied by the statutory credit rate for 2024 of
$30.07).
(B) The total recapture amount in 2025 is the
same $5,467,300 as in Example 2, but is allocated
between A and C. The first 90,000 metric tons of re-
captured qualified carbon oxide are deemed attribut-
able to 2024. The credits that are attributable to 2024
are recaptured at the 2024 statutory rate of $30.07
per ton (for a recapture amount of $2,706,300). Be-
cause C claimed that amount of section 45Q credit
in 2024, a recapture amount of $2,706,300 is add-
ed to C’s tax due for 2025. The remaining 100,000
metric tons of recaptured qualified carbon oxide are
deemed attributable to 2023. The credits that are at-
tributable to 2023 are recaptured at the 2023 statu-
tory rate of $27.61 per ton (for a recapture amount
of $2,761,000). Because A claimed that amount of
section 45Q credit in 2023, a recapture amount of
$2,761,000 is added to A’s tax due for 2025.
(iv) Example 4. (A) Assume the same facts as
in Example 2, except that in 2023 A made a section
45Q(f)(3)(B) election to allow B to claim one-half
of the section 45Q credit for 2023. A and B each
claimed $1,380,500 of section 45Q credit in 2023
(50,000 metric tons each multiplied by the 2023 stat-
utory rate of $27.61).
(B) The total recapture amount in 2025 is the
same $5,467,300 as in Example 2, but is allocat-
ed among A and B. The first 90,000 metric tons of
recaptured qualified carbon oxide is deemed attrib-
utable to 2024. The section 45Q credit amounts at-
tributable to 2024 are recaptured at the 2024 statu-
tory rate of $30.07 per ton (for a recapture amount
of $2,706,300). Because A claimed that amount of
section 45Q credit in 2024, $2,706,300 is added to
A’s tax due for 2025. The remaining 100,000 metric
tons of recaptured qualified carbon oxide is deemed
attributable to 2023. The section 45Q credit amounts
attributable to 2023 are recaptured at the 2023 stat-
utory rate of $27.61 per ton (for a recapture amount
of $2,761,000). Because A and B each claimed
half of that amount ($1,380,500) of section 45Q
credit in 2023, $1,380,500 is added to both A’s and
B’s tax due for 2025. Thus, a recapture amount of
$4,086,800 is added to A’s tax due for 2025, and a
recapture amount of $1,380,500 is added to B’s tax
due for 2025.
(v) Example 5. (A) Assume the same facts as in
Example 2, except that the 100,000 metric tons of
carbon dioxide sold to B in 2021, 2022, 2023, and
2024 for use as a tertiary injectant in a qualified en-
hanced oil recovery project were captured equally
(50,000 metric tons per year) from qualified facilities
owned by J and K. Neither J nor K made a section
45Q(f)(3)(B) election to allow B to claim the credit.
(B) Because the leakage determined in 2024
(10,000 metric tons) did not exceed the amount used
as a tertiary injectant in 2024 (100,000 metric tons)
a recapture event did not occur in 2024. The total
amount of section 45Q credit for 2024 is $2,706,300
(net 90,000 metric tons of qualified carbon oxide
captured and used as a tertiary injectant multiplied
by the statutory credit rate for 2024 of $30.07). J and
K may each claim half of this amount of section 45Q
credit ($1,353,150) in 2024.
(C) The total recapture amount in 2025 is the
same $5,467,300 as in Example 2, but is allocated
between J and K. The section 45Q credit amounts
relating to the first 90,000 metric tons of recap-
tured qualified carbon oxide are deemed attribut-
able to 2024 and are recaptured at the 2024 statu-
tory rate of $30.07 per ton (for a recapture amount
of $2,706,300). Because J and K each claimed half
of that amount ($1,353,150) of section 45Q cred-
it in 2024, $1,353,150 is added to both J’s and K’s
tax due for 2025. The section 45Q credit amounts
relating to the remaining 100,000 metric tons of re-
captured qualified carbon oxide are deemed attrib-
utable to 2023 and are recaptured at the 2023 stat-
utory rate of $27.61 per ton (for a recapture amount
of $2,761,000). Because J and K each claimed half
of that amount ($1,380,500) of section 45Q credit
in 2023, an additional $1,380,500 is added to both
J’s and Ks tax due for 2025. Thus, a total recapture
amount of $2,733,650 is added to both J’s and K’s
tax due for 2025.
(vi) Example 6. (A) M owns Industrial Facility
Z. No other taxpayer has ever owned Z, and M has
never allowed another taxpayer to claim any section
45Q credits with respect to qualified carbon oxide
captured from Z. M captured 1,000,000 metric tons
of carbon dioxide annually in each of 2017, 2018,

July 20, 2020 184 Bulletin No. 2020–30
2019, 2020, 2021, 2022, 2023, 2024, and 2025. All
captured carbon dioxide was sold to N for use a
tertiary injectant in a qualified enhanced oil recov-
ery project. N provided contractual assurance that
the carbon dioxide would be sequestered in secure
geological storage. M claimed section 45Q cred-
it amounts of $12,830,000 in 2017, $15,209,000
in 2018, $17,760,000 in 2019, $20,220,000 in
2020, $22,680,000 in 2021, $25,150,000 in 2022,
$27,610,000 in 2023, $30,070,000 in 2024, and
$32,540,000 in 2025 using the statutory rates in
§1.45Q-1(d)(3). No injection of carbon oxides takes
place in 2026. In 2026, N determined that 6,200,000
metric tons of carbon dioxide previously injected
had leaked from the containment area of the reser-
voir and will eventually migrate to the atmosphere.
(B) Because the leakage determined in 2025
(6,200,000 metric tons) exceed the amount stored
in 2026 (0 metric tons) a recapture event occurred
in 2026. A’s credit for 2026 is $0 because the net
amount of carbon dioxide captured and used as a ter-
tiary injectant in 2026 was 0 metric tons. The 2026
recapture amount is calculated by multiplying the
6,200,000 metric tons of recaptured qualified carbon
oxide by the appropriate statutory credit rate using
the LIFO method. The first 1,000,000 metric tons of
recaptured qualified carbon oxide is deemed attribut-
able to 2025, and is recaptured at the 2025 statutory
rate of $32.54 per metric ton. The next 1,000,000
metric tons of recaptured qualified carbon oxide is
deemed attributable to 2024, and is recaptured at
the 2024 statutory rate of $30.07 per metric ton. The
next 1,000,000 metric tons of recaptured qualified
carbon oxide is deemed attributable to 2024, and is
recaptured at the 2023 statutory rate of $27.16 per
metric ton. The next 1,000,000 metric tons of re-
captured qualified carbon oxide is deemed attribut-
able to 2022, and is recaptured at the 2022 statutory
rate of $25.15 per metric ton. The next 1,000,000
metric tons of recaptured qualified carbon oxide is
deemed attributable to 2021, and is recaptured at
the 2021 statutory rate of $22.68 per metric ton. The
remaining 1,200,000 metric tons are not subject to
recapture because of the five-year lookback limit in
§1.45Q-1(g)(2). Thus, the total recapture amount is
$138,050,000, and is added to A’s tax due for 2026.
(h) Recapture in the event of intentional
removal from storage. If qualified carbon
oxide for which a credit has been claimed
is deliberately removed from a secure
geological storage site, then a recapture
event would occur in the year in which the
qualified carbon oxide is removed from
the storage site pursuant to §1.45Q-5(a).
(i) Limited exceptions. A recapture
event is not triggered in the event of a loss
of containment of qualified carbon oxide
resulting from actions not related to the
selection, operation, or maintenance of the
storage facility, such as volcanic activity
or terrorist attack.
(j) Applicability date. This section ap-
plies to taxable years beginning after [IN-
SERT DATE FINAL REGULATIONS
ARE PUBLISHED IN THE Federal
Register.] Taxpayers may choose to apply
this section for taxable years beginning
on or after February 9, 2018, provided the
taxpayer applies this section and sections
1.45Q-1, 1.45Q-2, 1.45Q-3, and 1.45Q-4
in their entirety and in a consistent man-
ner.
Deputy Commissioner for Services
and Enforcement.
(Filed by the Office of the Federal Register on May
29, 2020, 11:15 a.m., and published in the issue of
the Federal Register for June 2, 2020, 85 FR 34050.)
Notice of Proposed
Rulemaking
Statutory Limitations on
Like-Kind Exchanges
REG-117589-18
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking.
SUMMARY: These proposed regulations
provide guidance under the Internal Rev-
enue Code (Code) to implement recent
changes enacted in the Tax Cuts and Jobs
Act. The proposed regulations amend the
existing regulations to add a definition of
real property to reflect statutory changes
limiting section 1031 to exchanges of real
property. The proposed regulations also
provide a rule addressing a taxpayer’s re-
ceipt of personal property that is inciden-
tal to real property the taxpayer receives
in the exchange. The proposed regulations
affect taxpayers that exchange business or
investment property for other business or
investment property and that must deter-
mine whether the exchanged properties
are real property for purposes of section
1031.
DATES: Written or electronic comments
and requests for a public hearing must be
received by August 11, 2020. Requests for
a public hearing must be submitted as pre-
scribed in the “Comments and Requests
for a Public Hearing” section.
ADDRESSES: Commenters are strongly
encouraged to submit public comments
electronically. Submit electronic submis-
sions via the Federal eRulemaking Portal
at https://www.regulations.gov (indicate
IRS and REG-117589-18) 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 pro-
cess public comments that are submitted
on paper through mail. Until further no-
tice, any comments submitted on paper
will be considered to the extent practi-
cable. The Department of the Treasury
(Treasury Department) and the IRS will
publish for public availability any com-
ment submitted electronically, and to the
extent practicable on paper, to its public
docket. Send hard copy submissions to:
CC:PA:LPD:PR (REG-117589-18), Room
5203, Internal Revenue Service, P.O. Box
7604, Ben Franklin Station, Washington,
DC 20044.
FOR FURTHER INFORMATION CON-
TACT: Concerning the proposed reg-
ulations, Edward C. Schwartz, (202)
317-4740; concerning submissions of
comments and outlines of topics, or re-
quests for a public hearing, Regina L.
Johnson, (202) 317-5177 (not toll-free
numbers).
SUPPLEMENTARY INFORMATION:
Background
I. Overview
This document contains proposed
amendments to the Income Tax Regu-
lations (26 CFR Part 1, as revised April
1, 2019) under section 1031 of the Code
(current regulations). The proposed
amendments to the current regulations
(proposed regulations) implement statuto-
ry amendments to section 1031 made by
section 13303 of Public Law 115-97 (131
Stat. 2054), commonly referred to as the
Tax Cuts and Jobs Act (TCJA). Section
13303(c) of the TCJA amended section
1031 to limit its application to exchanges
of real property for exchanges completed
after December 31, 2017, subject to a tran-

Bulletin No. 2020–30 185 July 20, 2020
sition rule for certain exchanges in which
property had been transferred before Jan-
uary 1, 2018. To implement these statu-
tory changes, the proposed regulations
would limit the application of the like-
kind exchange rules under section 1031 to
exchanges of real property and adapt an
existing incidental property exception to
apply to a taxpayer’s receipt of personal
property that is incidental to real property
the taxpayer receives in the exchange.
II. Section 1031 after the TCJA
As amended by the TCJA, section
1031(a) provides that no gain or loss is
recognized on the exchange of real prop-
erty held for productive use in a trade or
business or for investment (relinquished
real property) if the relinquished real prop-
erty is exchanged solely for real property
of a like kind that is to be held either for
productive use in a trade or business or for
investment (replacement real property).
However, left unchanged by the TCJA,
section 1031(b) provides that a taxpay-
er must recognize gain on the receipt of
money and non-like-kind property in an
exchange.
III. Current regulations regarding “like
kind”
Although the TCJA removed personal
and certain intangible property from eli-
gibility for like-kind exchange treatment,
the need to determine whether the relin-
quished real property and the replacement
real property are of a like kind continues
to exist after the changes to section 1031
made by the TCJA. Current §1.1031(a)-
1(b) provides that “like kind” refers to the
nature or character of the real property and
not to its grade or quality. Real property
of one kind or class may not, under sec-
tion 1031, be exchanged for real property
of a different kind or class. The fact that
any real property involved is improved or
unimproved is not material, for that fact
relates only to the grade or quality of the
real property and not to its kind or class.
Under current §1.1031(a)-1(c), examples
of exchanges of real property of a like
kind include an exchange: by a non-dealer
of city real estate for a farm or ranch; of
improved real estate for unimproved real
estate; and of a leasehold interest in a fee
with 30 years or more to run for real es-
tate.
IV. Identification of exchanged properties
Under section 1031(a)(3), unchanged
by the TCJA, real property a taxpayer
receives in an exchange is not like-kind
property unless, within 45 days of the
taxpayer’s transfer of the relinquished
real property, the real property is identi-
fied as replacement real property to be
received in the exchange. Under current
§1.1031(k)-1(c)(4), the maximum number
of properties a taxpayer may identify as
replacement real property is three prop-
erties, without regard to the fair market
value of the properties, or any number
of properties as long as the aggregate
fair market value of the properties does
not exceed 200 percent of the aggregate
fair market value of the relinquished real
property. Current § 1.1031(k)-1(c)(5) pro-
vides that, for purposes of the identifica-
tion rules, property that is incidental to a
larger item of property is not treated as
property separate from the larger item if,
in standard commercial transactions, the
property is typically transferred with the
larger item of property, and the aggregate
fair market value of all of the incidental
property does not exceed 15 percent of the
aggregate fair market value of the larger
item of property.
V. Recognition of gain or loss on actual
or constructive receipt of non-like-kind
property
Under current §1.1031(k)-1(f)(1), if
a taxpayer actually or constructively re-
ceives money or property that is not of a
like kind to the taxpayer’s relinquished
real property (other property) before the
taxpayer receives like-kind replacement
real property, gain or loss may be recog-
nized. In addition, if the money or other
property the taxpayer receives is in the
full amount of the consideration for the
relinquished real property, the transaction
is a sale and not a deferred exchange, even
though the taxpayer may ultimately re-
ceive like-kind replacement real property.
Current §1.1031(k)-1(g)(2) through (5)
provides safe harbors, the use of which
result in a taxpayer not being consid-
ered in actual or constructive receipt of
money or other property. Under current
§1.1031(k)-1(g)(4)(i), in the case of a tax-
payer’s transfer of relinquished property
involving a qualified intermediary, the
qualified intermediary is not considered
the agent of the taxpayer for purposes of
section 1031(a) and the determination of
whether the taxpayer is in actual or con-
structive receipt of money or other proper-
ty is made as if the qualified intermediary
is not the agent of the taxpayer. However,
current §1.1031(k)-1(g)(4)(i) applies only
if, pursuant to the requirements of cur-
rent §1.1031(k)-1(g)(6)(i), the agreement
between the taxpayer and the qualified
intermediary expressly limits the taxpay-
er’s rights to receive, pledge, borrow, or
otherwise obtain the benefits of money or
other property held by the qualified inter-
mediary.
Under current §1.1031(k)-1(g)(7), in
determining whether a taxpayer’s rights to
receive, pledge, borrow, or otherwise ob-
tain the benefits of money or other prop-
erty are expressly limited as provided in
current §1.1031(k)-1(g)(6), the taxpayer’s
receipt of or right to receive items that a
seller may receive as a consequence of
the disposition of property and that are
not included in the amount realized from
the disposition of property (for example,
prorated rents) are disregarded. Also dis-
regarded are transactional items that relate
to the disposition of the relinquished prop-
erty or to the acquisition of the replace-
ment property and appear under local
standards in the typical closing statements
as the responsibility of a buyer or seller,
such as commissions, prorated taxes, re-
cording or transfer taxes, and title compa-
ny fees.
Explanation of Provisions
I. Definition of Real Property
A. Approach of the proposed regulations
The determination of whether proper-
ty is real property has taken on addition-
al significance as a result of the TCJA
amendments limiting like-kind exchange
treatment under section 1031 to ex-
changes of real property. Prior to enact-
ment of the TCJA, neither the Code nor
the Income Tax Regulations provided a
definition of the term “real property” for

July 20, 2020 186 Bulletin No. 2020–30
purposes of section 1031. The Treasury
Department and the IRS have determined
that regulations providing guidance on
whether property is real property under
section 1031 are needed because taxpay-
ers need certainty regarding whether any
part of the replacement property received
in an exchange is non-like-kind property
subject to the gain recognition rules of
section 1031(b).
The legislative history to the TCJA pro-
vides that real property eligible for like-
kind exchange treatment under pre-TCJA
law should continue to be eligible for like-
kind exchange treatment after the enact-
ment of the TCJA. The legislative history
further provides that real property under
section 1031 includes shares in a mutu-
al ditch, reservoir, or irrigation company
described in section 501(c)(12)(A) of the
Code if the state in which the company is
organized views the shares of the compa-
ny as real property. Similarly, improved
real estate and unimproved real estate are
generally considered to be property of a
like kind. H. Rept. 115-466, at 396, fn.
726 (2017) (Conference Report). These
proposed regulations define the term “real
property” for purposes of section 1031 in
a manner consistent with the scope de-
scribed by Congress in the Conference
Report.
Various Income Tax Regulations pro-
vide definitions of real property for pur-
poses of applying Code sections other than
section 1031. For example, §1.263(a)-3(b)
generally defines real property for purpos-
es of the requirement to capitalize amounts
paid to acquire, produce, or improve tan-
gible property under section 263(a) by
reference to §§1.48-1(c) and (d). Section
1.263A-8(c) provides a definition of real
property for purposes of determining
whether interest expense relating to the
production of designated property must be
capitalized under the rules in §1.263A-8.
Section 1.1250-1(e)(3) defines real prop-
erty for purposes of determining depre-
ciation or amortization recapture upon
the disposition of certain property. Spe-
cifically, §1.1250-1(e)(3) uses section 48
principles for the definition of real prop-
erty through its reference to the rules in
§1.1245-3(c). Section 1.856-10 provides a
definition of real property for determining
whether a corporation qualifies as a real
estate investment trust (REIT) under sec-
tions 856 through 859 of the Code. Sec-
tion 1.897-1(b) defines real property for
purposes of section 897, which treats gain
or loss from a foreign person’s disposition
of a U.S. real property interest as income
effectively connected with a U.S. trade or
business.
Although there are many similarities
in the way various sections of the Code,
and the regulations under those sections,
define “real property,” there are also dif-
ferences in those definitions that reflect
the different purposes underlying those
provisions. Certain sections of the Code
and Income Tax Regulations apply broad
definitions and sets of rules for the defi-
nition of real property, while others ap-
ply narrower definitions. For example,
§1.1250-1(e)(3) uses a narrow definition
of real property, which is relied upon for
purposes of applying section 168 and
former section 38. Under section 168, a
tangible asset that is personal property, as
opposed to real property, generally is de-
preciated at a faster rate than real property
is depreciated. See section 168(c) and (g)
(2)(C). Under former section 38, the in-
vestment tax credit applied to qualified in-
vestment in depreciable property (section
38 property) described in former section
48(a), which primarily included tangible
personal property and excluded real prop-
erty. See §§1.48-1(c) and (d). In contrast,
section 897 uses a broad definition of real
property that includes items of personal
property that are associated with the use
of real property. See section 897(c)(6)(B)
(real property includes movable walls,
furnishings, and other personal property
associated with the use of the real prop-
erty). Under section 897, an item of prop-
erty may be treated as a U.S. real property
interest under the Foreign Investment in
Real Property Act provisions, notwith-
standing that it is characterized as person-
al property for other purposes of the Code.
In the context of REITs under sections 856
through 859, the regulations defining real
property set forth a broader definition for
purposes of satisfying the REIT quarterly
asset test. The regulations under section
856 were based in part on the particular
policies underlying the REIT provisions,
and apply only for purposes of the REIT
provisions.
The Treasury Department and the IRS
have concluded that it would not be appro-
priate to adopt wholesale as the definition
of real property for purposes of section
1031 an existing definition of real prop-
erty from another section of the Code or
regulations due to the varying purposes
of each of the provisions of the Code, and
the intent of Congress that real property
eligible for like-kind exchange treatment
under pre-TCJA law should continue to be
eligible for like-kind exchange treatment
in years beginning after 2017. Using the
definition of real property in §1.263(a)-
3(b), §1.263A-8(c), §1.1250-1(e), or other
regulations discussed in this Explanation
of Provisions, would be inappropriate be-
cause, for example, certain shares in a mu-
tual ditch, reservoir, or irrigation company
are real property eligible for like-kind ex-
change treatment under pre-TCJA law, but
would not be real property under some of
the other regulations. Similarly, §1.856-
10 provides that property having an ac-
tive function such as producing, manu-
facturing, or creating a product is not real
property under section 856, but nothing in
pre-TCJA section 1031 law suggests that
real property held for productive use in a
trade or business or for investment should
necessarily be excluded from the defini-
tion of real property because of an active
rather than passive function.
Thus, instead of a wholesale adoption
of an existing real property definition used
in another Code or regulations section,
these proposed regulations incorporate
certain aspects from existing regulatory
definitions of real property that are con-
sistent with the legislative history under-
lying the TCJA amendment to section
1031 indicating that real property eligi-
ble for like-kind exchange treatment un-
der pre-TCJA law should continue to be
eligible for like-kind exchange treatment
after the enactment of the TCJA. See, for
example, §§1.263(a)-3(b)(3) and 1.856-10
defining the term “real property” to mean
land and improvements to land such as
buildings and other inherently permanent
structures, and their structural compo-
nents, and providing that local law is not
controlling for purposes of determining
whether property is real property under
that section; §1.263A-8(c) providing that
real property includes unsevered natural
products of land such as growing crops
and plants, mines, wells, and other natural
deposits; and §1.856-10(c) providing, in

Bulletin No. 2020–30 187 July 20, 2020
relevant part, that the term “land” includes
“water and air space superjacent to land.”
B. Proposed definition of real property
Under the proposed regulations, real
property includes land and improvements
to land, unsevered crops and other natural
products of land, and water and air space
superjacent to land. Improvements to land
include inherently permanent structures
and the structural components of inher-
ently permanent structures. The proposed
regulations also provide that local law
definitions generally are not controlling in
determining the meaning of the term “real
property” for purposes of section 1031.
This real property definition language is
very similar to the language in most of
the other regulatory provisions previously
mentioned, including the regulations un-
der section 48, section 263(a), and section
263A. The definition under the proposed
regulations, however, includes differenc-
es necessary for the proper application of
section 1031.
These proposed regulations provide
that each distinct asset must be analyzed
separately from any other assets to which
the asset relates to determine if the asset
is real property, whether as land, an inher-
ently permanent structure, or a structural
component of an inherently permanent
structure. Items that are specifically listed
in these proposed regulations as buildings
and other inherently permanent structures
are distinct assets. Assets and systems
specifically listed in these proposed reg-
ulations as types of structural components
also are treated as distinct assets. Other
distinct assets are identified using factors
provided by these proposed regulations.
All listed factors must be considered, and
no one factor is determinative. These rules
are based on similar rules concerning dis-
tinct assets in §1.856-10(e).
The proposed regulations provide that
inherently permanent structures include
any building or other structure that is
permanently affixed to real property and
that will ordinarily remain affixed for an
indefinite period of time. For this purpose,
the proposed regulations define a “build-
ing” as any structure or edifice enclosing a
space within its walls, and usually covered
by a roof, the purpose of which is, for ex-
ample, to provide shelter or housing, or to
provide working, office, parking, display,
or sales space. “Buildings” also include
the following distinct assets if perma-
nently affixed: houses, apartments, hotels,
motels, enclosed stadiums and arenas, en-
closed shopping malls, factory and office
buildings, warehouses, barns, enclosed
garages, enclosed transportation stations
and terminals, and stores. The definition
of building and the examples of buildings
in the proposed regulations are derived
from §1.48-1(e)(1) and §1.856-10(d)(2)
(ii)(B).
The proposed regulations also provide
a list of structures that qualify as inherent-
ly permanent structures. If property is not
included in the list of inherently perma-
nent structures, the proposed regulations
provide factors that must be used to de-
termine whether the property is an inher-
ently permanent structure for purposes of
section 1031. These factors are similar to
the factors in §1.856-10(d)(2)(iv).
Under the proposed regulations, prop-
erty that is in the nature of machinery or is
essentially an item of machinery or equip-
ment is generally not an inherently perma-
nent structure and not real property under
section 1031. In the case, however, of a
building or inherently permanent struc-
ture that includes property in the nature of
machinery as a structural component, the
machinery is real property if it serves the
inherently permanent structure and does
not produce or contribute to the produc-
tion of income other than for the use or
occupancy of space. These rules regarding
machinery are very similar to the rules in
§1.263A-8(c)(4) and §1.856-10(d)(3).
Under the proposed regulations, struc-
tural components of inherently permanent
structures are improvements to land and
thus real property for purposes of section
1031. A structural component is any dis-
tinct asset that is a constituent part of, and
integrated into, an inherently permanent
structure. If interconnected assets work
together to serve an inherently permanent
structure (for example, systems that pro-
vide a building with electricity, heat, or
water), the assets are analyzed together
as one distinct asset that may qualify as a
structural component. For example, a gas
line that provides fuel to a building’s heat-
ing system comprises a part of the struc-
tural component that is the heating system,
and therefore qualifies as real property for
section 1031 purposes. However, if the
purpose of a gas line is to provide fuel to
business equipment in a building, such as
fryers and ovens in a building utilized as a
restaurant, the gas line is not a constituent
part of an inherently permanent structure
and therefore not real property for section
1031 purposes. Comments are requested
on whether the function of a distinct asset
that is not machinery is appropriate to use
as the basis for determining whether the
asset qualifies as real property for section
1031 purposes.
A structural component may qualify
as real property only if the taxpayer holds
its interest in the structural component to-
gether with a real property interest within
the physical space of the inherently per-
manent structure served by the structural
component. If a distinct asset is custom-
ized in connection with the rental of space
in or on an inherently permanent structure
to which the asset relates, the customiza-
tion does not affect whether the distinct
asset is a structural component.
The proposed regulations also contain
a list of properties that are structural com-
ponents for purposes of section 1031. For
components not included in the list, the
proposed regulations provide factors for
determining whether the component is a
structural component of a building or in-
herently permanent structure and thus real
property for section 1031 purposes. The
proposed regulations also address tenant
improvements to a building that are inher-
ently permanent or otherwise classified as
real property and property produced for
sale that is not real property in the hands
of the producing taxpayer or a related per-
son. The rules in the proposed regulations
relating to structural components are sim-
ilar to the rules in many of the other regu-
lations discussed in this preamble.
The proposed regulations provide that
unsevered natural products of land gener-
ally are treated as real property under sec-
tion 1031. This includes growing crops,
plants, and timber; mines; wells; and other
natural deposits. Natural products and de-
posits, such as crops, timber, water, ores,
and minerals, cease to be real property
when they are severed, extracted, or re-
moved from the land.
The proposed regulations also address
instances in which intangible property is
considered real property under section

July 20, 2020 188 Bulletin No. 2020–30
1031. An intangible asset is real property
or an interest in real property for purpos-
es of section 1031 to the extent it derives
its value from real property or an interest
in real property, is inseparable from that
real property or interest in real property,
and does not produce or contribute to the
production of income other than consid-
eration for the use or occupancy of space.
For instance, a license, permit, or other
similar right that is solely for the use, en-
joyment, or occupation of land or an in-
herently permanent structure, and that is
in the nature of a leasehold, easement, or
fee ownership, generally is an interest in
real property for purposes of section 1031.
Under the proposed regulations, a li-
cense or permit to engage in or operate
a business on real property is not real
property or an interest in real proper-
ty for purposes of section 1031 if the li-
cense or permit produces or contributes
to the production of income other than
consideration for the use and occupancy
of space. The rules in the proposed reg-
ulations relating to intangible assets are
similar to the rules in §1.856-10(f) and are
consistent with pre-TCJA law concerning
whether an intangible asset is real prop-
erty for section 1031 purposes. See Com-
missioner v. Crichton, 122 F.2d 181 (5th
Cir. 1941), concluding that an interest in
mineral rights is real property for section
1031 purposes, Peabody Natural Resourc-
es Co. v. Commissioner, 126 T.C. 261
(2006), holding that coal supply contracts
were real property for section 1031 pur-
poses, and Rev. Rul. 68-331, 1968-1 C.B.
352, holding that the interest of a lessee in
a producing oil lease is an interest in real
property for section 1031 purposes.
These proposed regulations define real
property only for purposes of section 1031.
Consequently, the proposed regulations
provide that no inference should be drawn
from the section 1031 definition of real
property for any purpose outside of section
1031, including for the classification of
property for depreciation, whether depreci-
ation recapture applies, or defining an asset
for disposition purposes under section 168
and the regulations under section 168.
The Treasury Department and the IRS
request comments regarding the definition
of real property set forth in these proposed
regulations. In particular, the Treasury De-
partment and the IRS request comments
regarding the proposed relevant factors
and analysis for determining the qualifica-
tion of an item as real property.
II. Incidental Personal Property
The Treasury Department and the IRS
are aware that taxpayers have questioned
the effect of the receipt of personal prop-
erty that is incidental to the taxpayer’s
replacement real property in an intend-
ed section 1031 exchange. For example,
taxpayers have asked whether an ex-
change fails to meet the requirements of
§1.1031(k)-1(g)(6)(i) if funds from the
transfer of relinquished property held
by the qualified intermediary are used to
acquire an office building, including the
personal property in the office building.
Taxpayers and qualified intermediaries
are concerned that a taxpayer would be
considered to be in constructive receipt
of all of the exchange funds held by the
qualified intermediary if the taxpayer is
able to direct the qualified intermediary to
use those funds to acquire property that is
not of a like kind to the taxpayer’s relin-
quished property. Under §1.1031(k)-1(a),
if a taxpayer actually or constructively re-
ceives the funds held by a qualified inter-
mediary before receiving the replacement
property, the transaction is a sale and not a
section 1031 like-kind exchange.
In response to these inquiries, the pro-
posed regulations add to the items in
§1.1031-1(g)(7) that are disregarded in de-
termining whether the agreement between
the taxpayer and the qualified intermediary
expressly limits the taxpayer’s rights to
receive, pledge, borrow, or otherwise ob-
tain the benefits of money or other proper-
ty held by the qualified intermediary. The
proposed regulations provide that personal
property that is incidental to replacement
real property is disregarded in determin-
ing whether a taxpayer’s rights to receive,
pledge, borrow, or otherwise obtain the
benefits of money or other property held
by a qualified intermediary are expressly
limited as provided in §1.1031(k)-1(g)(6).
Personal property is incidental to real prop-
erty acquired in an exchange if, in stan-
dard commercial transactions, the personal
property is typically transferred together
with the real property, and the aggregate
fair market value of the incidental personal
property transferred with the real property
does not exceed 15 percent of the aggre-
gate fair market value of the replacement
real property. This incidental property rule
in the proposed regulations is based on the
existing rule in §1.1031(k)-1(c)(5), which
provides that certain incidental property
is ignored in determining whether a tax-
payer has properly identified replacement
property under section 1031(a)(3)(A) and
§1.1031(k)-1(c).
The Treasury Department and the IRS
request comments regarding the proposed
treatment of a taxpayer’s receipt of per-
sonal property that is incidental to the
taxpayer’s replacement real property in an
intended section 1031 exchange. In addi-
tion, the Treasury Department and the IRS
request comments regarding the two-fac-
tor analysis for determining whether per-
sonal property is incidental to real prop-
erty acquired in such an exchange. In
particular, comments are requested with
regard to the appropriateness of the pro-
posed 15-percent fair market value limit
set forth in that test for personal property
transferred with real property.
III. Outdated Regulations
The Treasury Department and the IRS
request comments regarding whether
existing regulations under section 1031
that apply to tax years before the TCJA
amendments to section 1031 limiting its
application to exchanges of real property
should be removed.
Proposed Applicability Date
These proposed regulations apply to
exchanges beginning on or after the date
the regulations are published as final reg-
ulations in the Federal Register. Pending
issuance of the final regulations, a tax-
payer may rely on these proposed regula-
tions, if followed consistently and in their
entirety, for exchanges of real property
beginning after December 31, 2017, and
before the final regulations are published.
Special Analyses
I. Regulatory Planning and Review –
Economic Analysis
Executive Orders 12866, 13563 and
13771 direct agencies to assess costs and

Bulletin No. 2020–30 189 July 20, 2020
benefits of available regulatory alterna-
tives and, if regulation is necessary, to se-
lect regulatory approaches that maximize
net benefits (including (i) potential eco-
nomic, environmental, and public health
and safety effects, (ii) potential distribu-
tive impacts, and (iii) equity). Executive
Order 13563 emphasizes the importance
of quantifying both costs and benefits, re-
ducing costs, harmonizing rules, and pro-
moting flexibility.
These regulations have been designat-
ed as significant under Executive Order
12866 pursuant to the Memorandum of
Agreement (April 11, 2018) (MOA) be-
tween the Treasury Department and the
Office of Management and Budget (OMB)
regarding review of tax regulations. The
Office of Information and Regulatory Af-
fairs has designated these regulations as
significant under section 1(b) of the MOA.
Accordingly, the OMB has reviewed these
regulations.
A. Background
1. Like-Kind Exchange
Prior to the amendment of section
1031 by the TCJA, certain exchanges
of personal, intangible, or real property
held for use in a trade or business or for
investment qualified for nonrecognition
under section 1031. Section 13301 of
the TCJA generally limits the applica-
tion of like-kind exchange treatment to
exchanges of real property after Decem-
ber 31, 2017, subject to a transition rule
applicable to exchanges not completed
by January 1, 2018. Specifically, section
1031 provides that no gain or loss is rec-
ognized on the exchange of real property
held for productive use in a trade or busi-
ness or for investment if the real property
is exchanged solely for real property of
a like kind that is to be held either for
productive use in a trade or business or
for investment.
2. Proposed Regulations
The proposed rules provide a defini-
tion of real property to distinguish it from
personal property, as the TCJA limited
the nonrecognition of gain or loss in the
case of like-kind exchange to exchanges
of real property. The legislative history
to the TCJA provides that real property
eligible for like-kind exchange treatment
prior to the TCJA should continue to be
eligible for like-kind exchange treatment.
H. Rept. 115-466, at 396, fn. 726 (2017).
Therefore, the Treasury Department and
the IRS propose to extract certain por-
tions of the definition of real property
from various existing regulations that are
consistent with the legislative history un-
derlying the TCJA amendment to section
1031. See, for example, §§1.263(a)-3(b)
(3) and 1.856-10 defining the term “real
property” to mean land and improve-
ments to land such as buildings and oth-
er inherently permanent structures, and
their structural components, and provid-
ing that local law is not controlling for
purposes of determining whether proper-
ty is real property; §1.263A-8(c) provid-
ing that real property includes unsevered
natural products of land such as growing
crops and plants, mines, wells, and oth-
er natural deposits; and §1.856-10(c)
providing, in relevant part, that the term
“land” includes “water and air space su-
perjacent to land.” Consistent with these
existing regulations, the proposed regula-
tions define real property to include land
and improvements to land, unsevered
crops and other natural products of land,
and water and air space superjacent to
land. Improvements to land include in-
herently permanent structures, and the
structural components of inherently per-
manent structures.
The proposed regulations also include
a separate rule relating to personal prop-
erty in an exchange that is incidental to
the real property exchanged. Under this
rule, personal property is incidental to
real property acquired in an exchange if,
in standard commercial transactions, the
personal property is typically transferred
together with the real property, and the
aggregate fair market value of the inci-
dental personal property transferred with
the real property does not exceed 15 per-
cent of the aggregate fair market value
of the replacement real property. This
incidental property rule in the proposed
regulations is based on an existing rule
in the regulations under 1031, which
provides that certain incidental proper-
ty is ignored in determining whether a
taxpayer has properly identified replace-
ment property.
3. No-action Baseline
The Treasury Department and the IRS
have assessed the benefits and costs of
these proposed regulations relative to a
no-action baseline reflecting anticipated
Federal income tax-related behavior in the
absence of these proposed regulations.
4. Economic Analysis of Regulation
In general, the proposed regulations
use existing definitions of real property in
the Income Tax Regulations to define real
property under section 1031 so that like-
kind exchanges of real property that took
place prior to the TCJA would qualify for
like-kind exchange treatment after the
passage of the TCJA, which is consistent
with the legislative history of the TCJA.
In addition, taxpayers are familiar with
the approach in the proposed regulations
concerning incidental personal property,
which is consistent with rules regarding
identification of replacement property un-
der existing section 1031 regulations.
The statutory changes made by the
TCJA to section 1031 limit like-kind ex-
changes to real property. Consistent with
longstanding regulations under section
1031, in determining whether a taxpayer
has actual or constructive receipt of mon-
ey or other property held by a qualified
intermediary, the proposed regulations
disregard certain incidental personal prop-
erty. Specifically, the proposed regulations
disregard incidental personal property that
(1) in standard commercial transactions is
typically transferred together with the real
property, and (2) does not exceed 15 per-
cent of the aggregate fair market value of
the replacement real property. Nonetheless,
under section 1031(b), a taxpayer must rec-
ognize gain on the receipt of the incidental
personal property, which is non-like-kind
property. The proposed 15-percent lim-
itation is responsive to ordinary-course
exchanges that often commingle personal
property and real property as part of the ag-
gregate exchanged property.
With regard to a limitation in excess of
15 percent, the Treasury Department de-
termined that a higher limit might induce
taxpayers to bundle more personal prop-
erty with their exchanged property. Such
a result would lead to increased amounts
of personal property exchanged with real

July 20, 2020 190 Bulletin No. 2020–30
property under section 1031 and effective-
ly unlock a class of personal property that
would no longer be “incidental” to the real
property. With regard to a lower limit, the
Treasury Department has determined that
the burden of accurately measuring the
separate costs of comingled personal and
real property would increase.
In addition, the proposed 15 percent in-
cidental personal property limitation would
reduce the cost of investing in real prop-
erty, when compared to no exchanges for
incidental personal property. Raising this
limit, however, would further increase the
tax incentives for investing in such proper-
ty, although most taxpayers will be indiffer-
ent when exchanging incidental property,
plants, and equipment with a depreciable
life of 20 years or less that is eligible for
100 percent additional first year deprecia-
tion, commonly referred to as “bonus de-
preciation.” Under 100 percent bonus de-
preciation, gains from the sale of property
can be offset by deductions for investment
in other qualifying property. Qualifying
property acquired after September 27,
2017, and placed in service after Septem-
ber 27, 2017, and generally before January
1, 2023, qualifies for full bonus deprecia-
tion. The bonus depreciation rate is phased
down 20 percent a year for property placed
in service after this date. In the absence of
100 percent bonus depreciation, expanding
incentives for like-kind exchange through
a higher incidental personal property lim-
itation could also distort investment deci-
sions within and across industries leading
to over-investment in like-kind properties
relative to consistent treatment across prop-
erties. The Treasury Department requests
comments and information that would help
further inform the analysis underlying the
proposed 15-percent limitation for inciden-
tal personal property.
The Treasury Department and the IRS
have determined that these rules will not
have a significant effect on the market for
like-kind exchanges of real property. Fi-
nally, these proposed regulations do not
significantly affect compliance burdens
as the regulations are substantially similar
to existing regulations affecting like-kind
exchanges for real property.
II. Paperwork Reduction Act
The collection of information in these
proposed regulations is reflected in the
collection of information for Form 8824,
Like-Kind Exchanges, which has been
reviewed and approved by the Office of
Management and Budget in accordance
with the Paperwork Reduction Act (44
U.S.C. 3507(c)) under control numbers
1545-0074. The number of respondents to
Form 8824 for tax year 2018 is estimated
at 125,000–220,000. The estimated burden
for individual taxpayers filing this form
is approved under OMB control number
1545-0074 and is included in the estimates
shown in the instructions for their individu-
al income tax return. The estimated burden
for taxpayers who file Form 8824, which
has not changed as a result of these pro-
posed regulations, is shown below.
Recordkeeping . . . . 10 hr., 16 min.
Learning about
the law or the
form . . . . . . . . . . . . 1 hr., 59 min.
Preparing the
form . . . . . . . . . . . . 2 hr., 14 min.
Form 8824 is used by taxpayers engag-
ing in section 1031 like-kind exchanges.
Beginning after December 31, 2017, sec-
tion 1031 like-kind exchange treatment
applies only to exchanges of real property
held for use in a trade or business or for
investment, other than real property held
primarily for sale. Before the law change,
section 1031 also applied to certain ex-
changes of personal or intangible proper-
ty. These proposed regulations provide a
definition of real property for purposes of
section 1031 and a rule for the receipt of
personal property that is incidental to real
property received in an exchange, and
makes conforming changes to the regula-
tions. The law change reflected in the pro-
posed regulations will result in fewer tax-
payers engaging in section 1031 like-kind
exchanges. This decrease in burden will be
reflected in the updated burden estimates
for the Form 8824. The requirement to
maintain records to substantiate informa-
tion on the Form 8824 is already contained
in the burden associated with the control
numbers for those forms and remains un-
changed. For purposes of the Paperwork
Reduction act, no burden estimates specific
to the proposed regulations are currently
available. The Treasury Department has
not estimated the burden, including that
of any new information collections, relat-
ed to the requirements under the proposed
regulations. Those estimates would capture
both changes made by the TCJA and those
that arise out of discretionary authority ex-
ercised in the proposed regulations.
The current status of the Paperwork Re-
duction Act submissions related to 1031 is
provided in the following table. The 1031
provisions are included in aggregated bur-
den estimates for OMB control number
1545-0074, which represents a total es-
timated burden time, including all relat-
ed forms and schedules, of 1.784 billion
hours and total estimated monetized costs
of $31.764 billion ($2017). The burden
estimates provided in the OMB control
numbers below are aggregate amounts that
relate to the entire package of forms asso-
ciated with the OMB control number, and
will in the future include but not isolate the
estimated burden of only the 1031 require-
ments. These numbers are therefore unre-
lated to the future calculations needed to
assess the burden imposed by the proposed
regulations. The Treasury Department
and IRS urge readers to recognize that
these numbers are duplicates and to guard
against over-counting the burden that tax
provisions imposed prior to the Act. The
Treasury Department and the IRS request
comments on all aspects of information
collection burdens related to the proposed
regulations. In addition, when available,
drafts of IRS forms are posted for comment
at www.irs.gov/draftforms.
Form 8824Individual (NEW Model)
1545-0074
Sixty-day notice published in the Federal Register on 9/30/19 (84 FR
51712). Public Comment period closed on 11/29/19. Thirty-day notice pub-
lished in the Federal Register on 12/18/19 (84 FR 69458). Comment period
closed on 1/17/20. Approved by OMB through 1/31/2021.
Link: https://www.federalregister.gov/documents/2019/12/18/2019-27285/agency-information-collection-activities-submission-
for-omb-review-comment-request-us-individual

Bulletin No. 2020–30 191 July 20, 2020
Form 8824 is also used by members of
the executive branch of the Federal Gov-
ernment and judicial officers of the Feder-
al Government to elect to defer gain under
section 1043 on certain sales of property
due to potential conflicts of interest aris-
ing from their status as government offi-
cials. These proposed regulations do not
address or affect the deferral of gain on
sales under section 1043.
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.
Books or records relating to a collec-
tion of information must be retained as
long as their contents may become mate-
rial in the administration of any internal
revenue law. Generally, tax returns and
return information are confidential, as re-
quired by 26 U.S.C. 6103.
III. Regulatory Flexibility Act
It is hereby certified that these proposed
regulations will not have a significant eco-
nomic impact on a substantial number of
small entities within the meaning of sec-
tion 601(6) of the Regulatory Flexibility
Act (5 U.S.C. chapter 6).
These proposed regulations update ex-
isting regulations under section 1031 to
reflect statutory changes made to section
1031 by the TCJA. Section 1031 provides
that a taxpayer exchanging investment
property or property held for produc-
tive use in a trade or business for other
investment or trade or business proper-
ty recognizes gain only to the extent of
money or other non-like-kind property
received in the exchange, and recognizes
no loss on the exchange. Under the TCJA
amendments to section 1031, for years
after 2017, section 1031 applies only to
exchanges of real property and no longer
applies to exchanges of personal property
and certain intangible property. The pro-
posed regulations provide a definition of
real property to be used in determining
whether a taxpayer has met the require-
ments of section 1031. In so doing, the
proposed regulations follow the legisla-
tive history underlying the TCJA amend-
ment to section 1031 providing that real
property eligible for like-kind exchange
treatment under pre-TCJA law contin-
ues to be eligible for like-kind exchange
treatment in years beginning after 2017.
Consequently, the proposed regulations
use certain aspects from existing regula-
tory definitions of real property that are
consistent with the legislative history un-
derlying the TCJA amendment to section
1031 requiring that the definition of real
property remain the same both before and
after enactment of the TCJA. Taxpayers
already are familiar with these rules,
which provide that real property includes
land, improvements to land, unsevered
natural products of land, and water and
air space superjacent to land. In addition,
the proposed regulations provide a rule
addressing a taxpayer’s receipt of per-
sonal property that is incidental to the
real property the taxpayer receives in the
exchange that is based on an existing rule
in §1.1031(k)-1.
Individuals and business entities that
own investment real property or real prop-
erty held for productive use in a trade or
business may engage in a section 1031
exchange. The provisions of section 1031
apply in the same manner to all taxpayers,
so the effect of the proposed regulations
is the same for taxpayers that are small
entities and taxpayers that are not small
entities. The small entities potentially im-
pacted by these regulations are business-
es organized as corporations (including S
corporations), partnerships, and individu-
als that file a Form 1040 Schedule C for
their respective trades or businesses or
Form 1040 Schedule E for their rental real
estate.
The number of small entities potential-
ly affected by these proposed regulations
is unknown but likely substantial because
like-kind exchange are entered into by en-
tities of all sizes. Although a substantial
number of small entities is potentially af-
fected by these proposed regulations, the
Treasury Department and the IRS have
concluded that the proposed regulations
will not have a significant economic im-
pact on a substantial number of small enti-
ties because the costs to comply with these
proposed regulations are not significant.
This is because for taxpayers still able to
engage in section 1031 exchanges, there
are no additional forms they are required
to file, and there is no new recordkeeping
required, to comply with section 1031 as
amended by the TCJA and these proposed
regulations. Thus, taxpayers that engage
in like-kind exchanges of real property in
2018 and later years won’t have any ad-
ditional burden as compared to taxpayers
engaging in like-kind exchanges in years
before 2018. Accordingly, it is hereby cer-
tified that these proposed regulations will
not have a significant economic impact on
a substantial number of small entities.
Notwithstanding this certification, the
Treasury Department and the IRS invite
comments from the public about the im-
pact of this proposed rule on small enti-
ties.
Pursuant to section 7805(f) of the
Code, this notice of proposed rulemaking
will be submitted to the Chief Counsel for
Advocacy of the Small Business Adminis-
tration for comment on its impact on small
business.
IV. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates
Reform Act of 1995 requires that agencies
assess anticipated costs and benefits and
take certain other actions before issuing a
final rule that includes any Federal man-
date that may result in expenditures in any
one year by a state, local, or tribal govern-
ment, in the aggregate, or by the private
sector, of $100 million in 1995 dollars,
updated annually for inflation. In 2019,
that threshold is approximately $164 mil-
lion. This proposed rule does not include
any mandate that may result in expendi-
tures by state, local, or tribal governments,
or by the private sector in excess of that
threshold.
V. Executive Order 13132: Federalism
Executive Order 13132 (entitled
“Federalism”) prohibits an agency from
publishing any rule that has federalism
implications if the rule either imposes sub-
stantial, direct compliance costs on state
and local governments, and is not required
by statute, or preempts state law, unless
the agency meets the consultation and
funding requirements of section 6 of the
Executive Order. This proposed rule does
not have federalism implications and does
not impose substantial, direct compliance
costs on state and local governments or
preempt state law within the meaning of
the Executive Order.

July 20, 2020 192 Bulletin No. 2020–30
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, consider-
ation will be given to any comments that
are submitted timely to the IRS as pre-
scribed in this preamble under the AD-
DRESSES heading. The Treasury De-
partment and the IRS request comments
on all aspects of the proposed rules. Any
electronic comments submitted, and to
the extent practicable any paper com-
ments submitted, will be made available
at http://www.regulations.gov or upon
request.
A public hearing will be scheduled if
requested in writing by any person who
timely submits electronic or written com-
ments. Requests for a public hearing are
also encouraged to be submitted electron-
ically. If a public hearing is scheduled,
notice of the date and time for the public
hearing will be published in the Federal
Register. Announcement 2020-4, 2020-
17 IRB 1, provides that until further no-
tice, public hearings conducted by the IRS
will be held telephonically. Any telephon-
ic hearing will be made accessible to peo-
ple with disabilities.
Drafting Information
The principal author of these proposed
regulations is Edward C. Schwartz of the
Office of Associate Chief Counsel (In-
come Tax and Accounting). However,
other personnel from the Treasury Depart-
ment and the IRS participated in their de-
velopment.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and record-
keeping requirements.
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is pro-
posed to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
* * * * *
Par. 2. Section 1.168(i)-1 is amended
by:
1. In the last sentence in paragraph (e)
(2)(viii)(A), removing “does not apply.” at
the end of the sentence and adding “and
the distinct asset determination under
§1.1031(a)-3(a)(4) do not apply.” in its
place;
2. In the first sentence in paragraph (m)
(1), removing the word “This” at the be-
ginning of the sentence and adding “Ex-
cept as provided in paragraph (m)(5) of
this section, this” in its place; and
3. Redesignating paragraph (m)(5) as
paragraph (m)(6) and adding new para-
graph (m)(5).
The addition reads as follows:
§1.168(i)-1 General asset accounts.
* * * * *
(m) * * *
(5) Application of paragraph (e)(2)
(viii)(A). The language “and the distinct
asset determination under §1.1031(a)-3(a)
(4) do not apply.” in the last sentence of
paragraph (e)(2)(viii)(A) of this section
applies on or after [EFFECTIVE DATE
OF THE FINAL RULE]. Paragraph (e)(2)
(viii)(A) of this section as contained in 26
CFR part I edition revised as of April 1,
2019, applies before the effective date of
the final rule.
Par. 3. Section 1.168(i)-8 is amended
by:
1. In the last sentence in paragraph
(c)(4)(i), removing “does not apply.” at
the end of the sentence and adding “and
the distinct asset determination under
§1.1031(a)-3(a)(4) do not apply.” in its
place;
2. At the beginning of the sentence
in paragraph (j)(1), removing the word
“This” and adding “Except as provided in
paragraph (j)(5) of this section, this” in its
place;
3. Redesignating paragraph (j)(5) as
paragraph (j)(6) and adding new para-
graph (j)(5).
The addition reads as follows:
§1.168(i)-8 Dispositions of MACRS
property.
* * * * *
(j) * * *
(5) Application of paragraph (c)(4)(i).
The language “and the distinct asset deter-
mination under §1.1031(a)-3(a)(4) do not
apply.” in the last sentence of paragraph
(c)(4)(i) of this section applies on or af-
ter [EFFECTIVE DATE OF THE FINAL
RULE]. Paragraph (c)(4)(i) of this section
as contained in 26 CFR part I edition re-
vised as of April 1, 2019, applies before
the effective date of the final rule.
Par. 4. Section 1.1031-0 is amended by
revising the entry for §1.1031(a)-1(e) and
adding entries for §1.1031(a)-3 to read as
follows:
§1.1031-0 Table of contents.
* * * * *
§1.1031(a)-1 Property held for pro-
ductive use in a trade or business or for
investment.
* * * * *
(e) Applicability dates.
* * * * *
§1.1031(a)-3 Definition of real prop-
erty.
(a) Real property.
(b) Examples.
(c) Applicability date.
* * * * *
Par. 5. Section 1.1031(a)-1 is amended
by adding paragraph (a)(3) and revising
paragraph (e) to read as follows:
§1.1031(a)-1 Property held for produc-
tive use in trade or business or for invest-
ment.
(a) * * *
(3) Exchanges after 2017. Pursuant to
section 13303 of Public Law 115-97 (131
Stat. 2054), for exchanges beginning af-
ter December 31, 2017, section 1031 and
§§1.1031(a)-1, 1.1031(b)-2, 1.1031(d)-1T,
1.1031(d)-2, 1.1031(j)-1, 1.1031(k)-1, and
references to section 1031 in §§1.1031(b)-
1, 1.1031(c)-1, and 1.1031(d)-1, apply
only to qualifying exchanges of real prop-
erty (within the meaning of §1.1031(a)-3)
that is held for productive use in a trade or
business, or for investment, and that is not
held primarily for sale.
* * * * *
(e) Applicability dates—(1) Exchanges
of partnership interests. The provisions of
paragraph (a)(1) of this section relating to
exchanges of partnership interests apply
to transfers of property made by taxpayers
on or after April 25, 1991.
(2) Exchanges after 2017. The provi-
sions of paragraph (a)(3) of this section
apply to exchanges beginning on or after
[EFFECTIVE DATE OF THE FINAL
RULE].
Par. 6. Section 1.1031(a)-3 is added to
read as follows:

Bulletin No. 2020–30 193 July 20, 2020
§1.1031(a)-3 Definition of real prop-
erty.
(a) Real property—(1) In general. The
term real property under section 1031 and
§§1.1031(a)-1 through 1.1031(k)-1 means
land and improvements to land, unsevered
natural products of land, and water and
air space superjacent to land. Under para-
graph (a)(5) of this section, an interest in
real property of a type described in this
paragraph (a)(1), including fee ownership,
co-ownership, a leasehold, an option to
acquire real property, an easement, or a
similar interest, is real property for pur-
poses of section 1031 and this section. Ex-
cept for a state’s characterization of shares
in a mutual ditch, reservoir, or irrigation
company described in paragraph (a)(5)(i)
of this section, local law definitions are
not controlling for purposes of determin-
ing the meaning of the term real property
under this section.
(2) Improvements to land—(i) In gen-
eral. The term improvements to land
means inherently permanent structures
and the structural components of inherent-
ly permanent structures.
(ii) Inherently permanent structures—
(A) In general. The term inherently per-
manent structures means any building or
other structure that is a distinct asset with-
in the meaning of paragraph (a)(4) of this
section and is permanently affixed to real
property and that will ordinarily remain
affixed for an indefinite period of time.
(B) Building. A building is any struc-
ture or edifice enclosing a space within its
walls, and covered by a roof, the purpose
of which is, for example, to provide shelter
or housing, or to provide working, office,
parking, display, or sales space. Buildings
include the following distinct assets if
permanently affixed: houses, apartments,
hotels, motels, enclosed stadiums and are-
nas, enclosed shopping malls, factories
and office buildings, warehouses, barns,
enclosed garages, enclosed transportation
stations and terminals, and stores.
(C) Other inherently permanent struc-
tures. Inherently permanent structures
under this paragraph (a)(2)(ii) include the
following distinct assets, if permanent-
ly affixed: in-ground swimming pools;
roads; bridges; tunnels; paved parking
areas, parking facilities, and other pave-
ments; special foundations; stationary
wharves and docks; fences; inherently
permanent advertising displays for which
an election under section 1033(g)(3) is
in effect; inherently permanent outdoor
lighting facilities; railroad tracks and sig-
nals; telephone poles; power generation
and transmission facilities; permanently
installed telecommunications cables; mi-
crowave transmission, cell, broadcasting,
and electric transmission towers; oil and
gas pipelines; offshore drilling platforms,
derricks, oil and gas storage tanks; grain
storage bins and silos; and enclosed trans-
portation stations and terminals. Affixa-
tion to real property may be accomplished
by weight alone. If property is not listed as
an inherently permanent structure in this
paragraph (a)(2)(ii)(C), the determination
of whether the property is an inherently
permanent structure under this paragraph
(a)(2)(ii) is based on the following fac-
tors—
(1) The manner in which the distinct
asset is affixed to real property;
(2) Whether the distinct asset is de-
signed to be removed or to remain in
place;
(3) The damage that removal of the dis-
tinct asset would cause to the item itself or
to the real property to which it is affixed;
(4) Any circumstances that suggest the
expected period of affixation is not indef-
inite; and
(5) The time and expense required to
move the distinct asset.
(D) Machinery. Property that is in the
nature of machinery or is essentially an
item of machinery or equipment is gener-
ally not an inherently permanent structure
and not real property for purposes of this
section. In the case, however, of a building
or inherently permanent structure that in-
cludes property in the nature of machinery
as a structural component, the machinery
is real property provided it serves the in-
herently permanent structure and does not
produce or contribute to the production of
income other than for the use or occupan-
cy of space.
(iii) Structural components—(A) In
general. The term structural component
means any distinct asset, within the mean-
ing of paragraph (a)(4) of this section, that
is a constituent part of, and integrated into,
an inherently permanent structure. If inter-
connected assets work together to serve an
inherently permanent structure (for exam-
ple, systems that provide a building with
electricity, heat, or water), the assets are
analyzed together as one distinct asset that
may be a structural component. A structur-
al component may qualify as real property
only if the taxpayer holds its interest in the
structural component together with a real
property interest in the space in the inher-
ently permanent structure served by the
structural component. If a distinct asset
is customized, the customization does not
affect whether the distinct asset is a struc-
tural component. Tenant improvements to
a building that are inherently permanent
or otherwise classified as real property
within the meaning of this paragraph (a)
(2)(iii) are real property under this section.
However, property produced for sale, such
as bricks, nails, paint, and windowpanes,
that is not real property in the hands of the
producing taxpayer or a related person,
as defined in section 1031(f)(3), but that
may be incorporated into real property by
an unrelated buyer, is not treated as real
property by the producing taxpayer.
(B) Examples of structural compo-
nents. Structural components include the
following items, provided the item is a
constituent part of, and integrated into,
an inherently permanent structure: walls;
partitions; doors; wiring; plumbing sys-
tems; central air conditioning and heating
systems; pipes and ducts; elevators and
escalators; floors; ceilings; permanent
coverings of walls, floors, and ceilings;
insulation; chimneys; fire suppression
systems, including sprinkler systems and
fire alarms; fire escapes; security systems;
humidity control systems; and other sim-
ilar property. If a component of a build-
ing or inherently permanent structure is a
distinct asset and is not listed as a struc-
tural component in this paragraph (a)(2)
(iii)(B), the determination of whether the
component is a structural component un-
der this paragraph (a)(2)(iii) is based on
the following factors—
(1) The manner, time, and expense of
installing and removing the component;
(2) Whether the component is designed
to be moved;
(3) The damage that removal of the
component would cause to the item itself
or to the inherently permanent structure to
which it is affixed; and
(4) Whether the component is installed
during construction of the inherently per-
manent structure.

July 20, 2020 194 Bulletin No. 2020–30
(3) Unsevered natural products of land.
Unsevered natural products of land, in-
cluding growing crops, plants, and timber;
mines; wells; and other natural deposits,
generally are treated as real property for
purposes of this section. Natural products
and deposits, such as crops, timber, water,
ores, and minerals, cease to be real prop-
erty when they are severed, extracted, or
removed from the land.
(4) Distinct asset—(i) In general. A
distinct asset is analyzed separately from
any other assets to which the asset relates
to determine if the asset is real property,
whether as land, an inherently permanent
structure, or a structural component of an
inherently permanent structure. Buildings
and other inherently permanent structures
are distinct assets. Assets and systems list-
ed as a structural component in paragraph
(a)(2)(iii)(B) of this section are treated as
distinct assets.
(ii) Facts and circumstances. The de-
termination of whether a particular sep-
arately identifiable item of property is a
distinct asset is based on all the facts and
circumstances. In particular, the following
factors must be taken into account—
(A) Whether the item is customarily
sold or acquired as a single unit rather
than as a component part of a larger asset;
(B) Whether the item can be separated
from a larger asset, and if so, the cost of
separating the item from the larger asset;
(C) Whether the item is commonly
viewed as serving a useful function inde-
pendent of a larger asset of which it is a
part; and
(D) Whether separating the item from a
larger asset of which it is a part impairs the
functionality of the larger asset.
(5) Intangible assets—(i) In general.
To the extent an intangible asset derives
its value from real property or an interest
in real property, is inseparable from that
real property or interest in real property,
and does not produce or contribute to the
production of income other than consid-
eration for the use or occupancy of space,
the intangible asset is real property or an
interest in real property. Real property
includes shares in a mutual ditch, reser-
voir, or irrigation company described in
section 501(c)(12)(A) if, at the time of
the exchange, the shares have been rec-
ognized by the highest court of the State
in which the company was organized, or
by a State statute, as constituting or rep-
resenting real property or an interest in
real property.
(ii) Licenses and permits. A license,
permit, or other similar right that is solely
for the use, enjoyment, or occupation of
land or an inherently permanent structure
and that is in the nature of a leasehold or
easement generally is an interest in real
property under this section. However, a
license or permit to engage in or operate a
business on real property is not real prop-
erty or an interest in real property if the
license or permit produces or contributes
to the production of income other than
consideration for the use and occupancy
of space.
(6) No inference outside of section
1031. The rules provided in this section
concerning the definition of real property
apply only for purposes of section 1031.
No inference is intended with respect to
the classification or characterization of
property for other purposes of the Code,
such as depreciation and sections 1245
and 1250. For example, a structure or a
portion of a structure may be section 1245
property for depreciation purposes and for
determining gain under section 1245, not-
withstanding that the structure or the por-
tion of the structure is real property under
this section. Also, a taxpayer transferring
relinquished property that is section 1245
property in a section 1031 exchange is
subject to the gain recognition rules under
section 1245 and the regulations under
section 1245, notwithstanding that the re-
linquished property or replacement prop-
erty is real property under this section.
In addition, the taxpayer must follow the
rules of section 1245 and the regulations
under section 1245, and section 1250 and
the regulations under section 1250, based
on the determination of the relinquished
property and replacement property being,
in whole or in part, section 1245 property
or section 1250 property under those Code
sections and not under this section.
(b) Examples. The following examples
illustrate the provisions of this section.
(1) Example 1: Natural products of land. A owns
land with perennial fruit-bearing plants that A har-
vests annually. The unsevered plants are natural
products of the land within the meaning of paragraph
(a)(3) of this section and thus are real property for
purposes of section 1031. A annually harvests fruit
from the plants. Upon severance from the land, the
harvested fruit ceases to be part of the land and there-
fore is not real property. Storage of the harvested
fruit upon or within real property does not cause the
harvested fruit to be real property.
(2) Example 2: Water space superjacent to land.
B owns a marina comprised of U-shaped boat slips
and end ties. The U-shaped boat slips are spaces on
the water that are surrounded by a dock on three
sides. The end ties are spaces on the water at the end
of a slip or on a long, straight dock. B rents the boat
slips and end ties to boat owners. The boat slips and
end ties are water space superjacent to land and thus
are real property within the meaning of paragraph (a)
(1) of this section.
(3) Example 3: Indoor sculpture. (i) C owns an
office building and a large sculpture in the atrium of
the building. The sculpture measures 30 feet tall by
18 feet wide and weighs five tons. The building was
specifically designed to support the sculpture, which
is permanently affixed to the building by supports
embedded in the building’s foundation. The sculp-
ture was constructed within the building. Removal
would be costly and time consuming and would de-
stroy the sculpture. The sculpture is reasonably ex-
pected to remain in the building indefinitely.
(ii) The sculpture is not an inherently permanent
structure listed in paragraph (a)(2)(ii)(C) of this sec-
tion, and, therefore, C must use the factors provided
in paragraphs (a)(2)(ii)(C)(1) through (5) of this sec-
tion to determine whether the sculpture is an inher-
ently permanent structure. The sculpture—
(A) Is permanently affixed to the building by
supports embedded in the building’s foundation;
(B) Is not designed to be removed and is de-
signed to remain in place indefinitely;
(C) Would be damaged if removed and would
damage the building to which it is affixed;
(D) Is expected to remain in the building indef-
initely; and
(E) Would require significant time and expense
to move.
(iii) The factors described in paragraphs (a)(2)(ii)
(C)(1) through (5) of this section all support the con-
clusion that the sculpture is an inherently permanent
structure within the meaning of paragraph (a)(2)(ii)
(A) of this section. Therefore, the sculpture is real
property.
(4) Example 4: Bus shelters. (i) D owns 400 bus
shelters, each of which consists of four posts, a roof,
and panels enclosing two or three sides. D enters
into a long-term lease with a local transit authority
for use of the bus shelters. Each bus shelter is pre-
fabricated from steel and is bolted to the sidewalk.
Bus shelters are disassembled and moved when bus
routes change. Moving a bus shelter takes less than a
day and does not significantly damage either the bus
shelter or the real property to which it was affixed.
(ii) The bus shelters are not permanently affixed
enclosed transportation stations or terminals, are not
buildings under paragraph (a)(2)(ii)(B) of this sec-
tion, nor are they listed as types of other inherent-
ly permanent structures in paragraph (a)(2)(ii)(C)
of this section. Therefore, the bus shelters must be
analyzed to determine whether they are inherently
permanent structures using the factors provided in
paragraphs (a)(2)(ii)(C)(1) through (5) of this sec-
tion. The bus shelters—
(A) Are not permanently affixed to the land or an
inherently permanent structure;

Bulletin No. 2020–30 195 July 20, 2020
(B) Are designed to be removed and not remain
in place indefinitely;
(C) Would not be damaged if removed and would
not damage the sidewalks to which they are affixed;
(D) Will not remain affixed indefinitely; and
(E) Would not require significant time and ex-
pense to move.
(iii) The factors described in paragraphs (a)(2)
(ii)(C)(1) through (5) of this section all support the
conclusion that the bus shelters are not inherently
permanent structures within the meaning of para-
graph (a)(2)(ii) of this section. Thus, the bus shelters
are not inherently permanent structures within the
meaning of paragraph (a)(2)(ii) of this section and,
therefore, are not real property.
(5) Example 5: Industrial 3D Printer. (i) E owns
a building that it uses in its trade or business of man-
ufacturing airplane parts. The building includes an
industrial 3D printer that can print airplane wings
and an electrical generator that serves the building
in a backup capacity. The 3D printer weighs 12 tons
and is designed to remain in place indefinitely once
installed in the building. The 3D printer was installed
during the building’s construction. The generator
also was installed during construction and is de-
signed to remain in place indefinitely once installed.
(ii) The 3D printer is machinery and, thus, gen-
erally not an inherently permanent structure and not
real property under paragraph (a)(2)(ii)(D) of this
section. In addition, although permanently affixed by
virtue of its weight and installed during construction
of E’s building, the 3D printer produces income oth-
er than for the use or occupancy of space. Thus, the
3D printer is not property in the nature of machin-
ery as a structural component within the meaning of
paragraph (a)(2)(ii)(D) of this section and, therefore,
is not real property.
(iii) The electrical generator serves the entire
building and does not generate income other than for
the use or occupancy of the building. Thus, the elec-
trical generator is property in the nature of machin-
ery as a structural component within the meaning of
paragraph (a)(2)(ii)(D) of this section and, therefore,
is real property.
(6) Example 6: Generator for Industrial 3D
Printer. The facts are the same as in paragraph (b)
(5), Example 5, except that E installed the electrical
generator for the purpose of keeping the industrial
3D printer operating in the event of a power outage.
The generator, itself machinery, was installed to
serve the operation of machinery and not the build-
ing. Thus, the electrical generator is not a structural
component within the meaning of paragraphs (a)(2)
(ii)(D) and (a)(2)(iii)(A) of this section and, there-
fore, is not real property.
(7) Example 7: Raised flooring for Industrial 3D
Printer. (i) The facts are the same as in paragraph
(b)(5), Example 5, except that E, when installing its
3D printer, also installed a raised flooring system for
the purpose of facilitating the operation of the 3D
printer. The raised flooring system is not designed or
constructed to remain permanently in place. Rather,
the raised flooring system can be removed, without
any substantial damage to the system itself or to the
building, and then reused. The raised flooring was
installed during the building’s construction.
(ii) The raised flooring system is not integrated
into the building as required by paragraph (a)(2)(iii)
(A) of this section and, therefore, is not listed in para-
graph (a)(2)(iii)(B) of this section. Thus, the raised
flooring must be analyzed to determine whether it is
a structural component of E’s building (within the
meaning of paragraph (a)(2)(iii) of this section) us-
ing the factors provided in paragraphs (a)(2)(iii)(B)
(1) through (4) of this section. The raised flooring—
(A) Is installed and removed quickly and with
little expense;
(B) Is designed to be moved and is not designed
specifically for the particular building of which it is
a part;
(C) Is not damaged, and the building is not dam-
aged, upon its removal; and
(D) Was installed during construction of the
building.
(iii) The factors described in paragraphs (a)(2)
(iii)(B)(1) through (4) of this section, considered in
the aggregate, support the conclusion that the raised
flooring is not a structural component of E’s building
within the meaning of paragraph (a)(2)(iii) of this
section. Although the raised flooring was installed
during construction of the building, that factor does
not outweigh the factors supporting the conclusion
that the flooring is not a structural component. There-
fore, the raised flooring is not real property under this
section.
(8) Example 8: Steam Turbine. (i) F owns a build-
ing with a large steam turbine attached as a fixture to
the building. The steam turbine is a component of a
system used for the commercial production of elec-
tricity for sale to customers in the ordinary course of
F’s business as an electric utility. The steam turbine
also generates electricity for F’s building. The steam
turbine takes up a substantial portion of the building
and is designed to remain in place indefinitely once
installed in F’s building. The steam turbine was in-
stalled during the construction of the building.
(ii) The steam turbine is machinery and, there-
fore, generally is not an inherently permanent struc-
ture and not real property under paragraph (a)(2)(ii)
(D) of this section. Although the steam turbine has
characteristics of a structural component because it
is permanently affixed, installed during construction
of F’s building, and serves F’s building, the steam
turbine is machinery that produces income other than
for the use or occupancy of space. Thus, the steam
turbine is not an inherently permanent structure
within the meaning of paragraph (a)(2)(ii)(D) of this
section and, therefore, is not real property.
(9) Example 9: Partitions. (i) G owns an office
building that it leases to tenants. The building in-
cludes partitions owned by G that are used to delin-
eate space within the building. The office building
has two types of interior, non-load-bearing drywall
partition systems: a conventional drywall partition
system (Conventional Partition System) and a mod-
ular drywall partition system (Modular Partition
System). Neither the Conventional Partition Sys-
tem nor the Modular Partition System was installed
during construction of the office building. Conven-
tional Partition Systems are comprised of fully in-
tegrated gypsum board partitions, studs, joint tape,
and covering joint compound. Modular Partition
Systems are comprised of assembled panels, studs,
tracks, and exposed joints. Both the Conventional
Partition System and the Modular Partition System
reach from the floor to the ceiling. In addition, both
are distinct assets as described in paragraph (a)(4)
of this section.
(ii) Depending on the needs of a new tenant, the
Conventional Partition System may remain in place
when a tenant vacates the premises. The Conven-
tional Partition System is integrated into the office
building and is designed and constructed to remain
in areas not subject to reconfiguration or expansion.
The Conventional Partition System can be removed
only by demolition, and, once removed, neither the
Conventional Partition System nor its components
can be reused. Removal of the Conventional Parti-
tion System causes substantial damage to the Con-
ventional Partition System itself, but does not cause
substantial damage to the building.
(iii) Modular Partition Systems are typically re-
moved when a tenant vacates the premises. Modular
Partition Systems are not designed or constructed to
remain permanently in place. Modular Partition Sys-
tems are designed and constructed to be movable.
Each Modular Partition System can be readily re-
moved, remains in substantially the same condition
as before, and can be reused. Removal of a Modu-
lar Partition System does not cause any substantial
damage to the Modular Partition System itself or to
the building. The Modular Partition System may be
moved to accommodate the reconfigurations of the
interior space within the office building for various
tenants that occupy the building.
(iv) The Conventional Partition System is com-
prised of walls that are integrated into an inherent-
ly permanent structure and are listed as structural
components in paragraph (a)(2)(iii)(B) of this sec-
tion. Thus, the Conventional Partition System is real
property.
(v) The Modular Partition System is not integrat-
ed into the building as required by paragraph (a)(2)
(iii)(A) of this section and, therefore, is not listed
in paragraph (a)(2)(iii)(B) of this section. Thus, the
Modular Partition System must be analyzed to de-
termine whether it is a structural component using
the factors provided in paragraphs (a)(2)(iii)(B)(1)
through (4) of this section. The Modular Partition
System—
(A) Is installed and removed quickly and with
little expense;
(B) Is designed to be moved and is not designed
specifically for the particular building of which it is
a part;
(C) Is not damaged, and the building is not dam-
aged, upon its removal; and
(D) Was not installed during construction of the
building.
(vi) The factors described in paragraphs (a)(2)
(iii)(B)(1) through (4) of this section support the
conclusion that the Modular Partition System is
not a structural component of G’s building within
the meaning of paragraph (a)(2)(iii) of this section.
Therefore, the Modular Partition System is not real
property.
(10) Example 10: Pipeline transmission system.
(i) H owns a natural gas pipeline transmission sys-
tem that provides a conduit to transport natural gas
from unrelated third-party producers and gathering
facilities to unrelated third-party distributors and end
users. The pipeline transmission system is comprised
of underground pipelines, isolation valves and vents,
pressure control and relief valves, meters, and com-

July 20, 2020 196 Bulletin No. 2020–30
pressors. Each of these distinct assets was installed
during construction of the pipeline transmission sys-
tem and each was designed to remain permanently
in place.
(ii) The pipelines are permanently affixed and
are listed as other inherently permanent structures
in paragraph (a)(2)(ii)(C) of this section. Thus, the
pipelines are real property.
(iii) Isolation valves and vents are placed at regu-
lar intervals along the pipelines to isolate and evacu-
ate sections of the pipelines in case there is need for a
shut-down or maintenance of the pipelines. Pressure
control and relief valves are installed at regular in-
tervals along the pipelines to provide overpressure
protection. The isolation valves and vents and pres-
sure control and relief valves are not listed in para-
graph (a)(2)(iii) of this section and, therefore, must
be analyzed to determine whether they are structural
components using the factors provided in paragraphs
(a)(2)(iii)(B)(1) through (4) of this section. The
isolation valves and vents and pressure control and
relief valves—
(A) Are time consuming and expensive to install
and remove from the pipelines;
(B) Are designed specifically for the particular
pipelines for which they are a part;
(C) Will sustain damage and will damage the
pipelines if removed; and
(D) Were installed during construction of the
pipelines.
(iv) The factors in paragraphs (a)(2)(iii)(B)(1)
through (4) of this section support the conclusion
that the isolation valves and vents and pressure con-
trol and relief valves are structural components of
H’s pipelines within the meaning of paragraph (a)(2)
(iii) of this section. Therefore, the isolation valves
and vents and pressure control and relief valves are
real property.
(v) Meters are used to measure the natural gas
passing into or out of the pipeline transmission
system for purposes of determining the end users’
consumption. Over long distances, pressure is lost
due to friction in the pipeline transmission system.
Compressors are required to add pressure to trans-
port natural gas through the entirety of the pipe-
line transmission system. Although the meters and
compressors were installed during the construction
of the pipelines, they are not time consuming and
expensive to install and remove from the pipelines;
are not designed specifically for the particular pipe-
lines for which they are a part; and their removal
does not cause damage to the asset or the pipelines if
removed. Thus, the meters and compressors are not
structural components within the meaning of para-
graph (a)(2)(iii) of this section and, therefore, are not
real property.
(11) Example 11: Land use permit. J receives a
special use permit from the government to place a
cell tower on Federal Government land that abuts
a Federal highway. Government regulations pro-
vide that the permit is not a lease of the land, but is
a permit to use the land for a cell tower. Under the
permit, the government reserves the right to cancel
the permit and compensate J if the site is needed for
a higher public purpose. The permit is in the nature
of a leasehold that allows J to place a cell tower in a
specific location on government land. Therefore, the
permit is an interest in real property under paragraph
(a)(5) of this section.
(12) Example 12: License to operate a business.
K owns a building and receives a license from State
A to operate a casino in the building. The license ap-
plies only to K’s building and cannot be transferred
to another location. K’s building is an inherently
permanent structure under paragraph (a)(2)(ii)(A) of
this section and, therefore, is real property. However,
K’s license to operate a casino is not a right for the
use, enjoyment, or occupation of K’s building, but is
rather a license to engage in the business of operating
a casino in the building for the production of income.
Therefore, the casino license is not real property un-
der paragraph (a)(5) of this section.
(c) Applicability date. This section ap-
plies to exchanges of real property begin-
ning on or after [EFFECTIVE DATE OF
THE FINAL RULE].
Par. 7. Section 1.1031(k)-1 is amended
by:
1. Removing “, and” at the end of para-
graph (g)(7)(i) and adding a semicolon in
its place;
2. Removing the period at the end of
paragraph (g)(7)(ii) and adding “; and” in
its place;
3. Adding paragraph (g)(7)(iii);
4. In paragraph (g)(8), designating Ex-
amples 1 through 5 as paragraphs (g)(8)(i)
through (v), respectively;
5. Further redesignating newly redes-
ignated paragraphs (g)(8)(i)(i) and (ii) as
paragraphs (g)(8)(i)(A) and (B);
6. Further redesignating newly redesig-
nated paragraphs (g)(8)(i)(A)(A) and (B)
as paragraphs (g)(8)(i)(A)(1) and (2), re-
spectively;
7. Designating the undesignated para-
graph immediately following newly re-
designated paragraph (g)(8)(i)(A)(2) as
paragraph (g)(8)(i)(A)(3);
8. Further redesignating newly redesig-
nated paragraphs (g)(8)(ii)(i) through (iii)
as paragraphs (g)(8)(ii)(A) through (C);
9. Further redesignating newly redesig-
nated paragraphs (g)(8)(ii)(A)(A) through
(C) as paragraphs (g)(8)(ii)(A)(1) through
(3);
10. Further redesignating newly redes-
ignated paragraphs (g)(8)(ii)(A)(1)(1) and
(2) as paragraphs (g)(8)(ii)(A)(1)(i) and
(ii), respectively;
11. In newly redesignated paragraph
(g)(8)(ii)(A)(1)(i), removing “, or” at the
end of the paragraph and adding “; or” in
its place;
12. Designating the undesignated para-
graph immediately following newly re-
designated paragraph (g)(8)(ii)(A)(3) as
paragraph (g)(8)(ii)(A)(4); and
13. Further redesignating newly redes-
ignated paragraphs (g)(8)(iii)(i) through
(v) as paragraphs (g)(8)(iii)(A) through
(E), respectively;
14. Further redesignating newly redes-
ignated paragraphs (g)(8)(iv)(i) through
(iii) as paragraphs (g)(8)(iv)(A) through
(C), respectively;
15. Further redesignating newly re-
desiganted paragraphs (g)(8)(v)(i) through
(iii) as paragraphs (g)(8)(v)(A) through
(C), respectively;
16. In newly redesiganted paragraph
(g)(8)(v)(B), removing “(g)(4))(i)” and
adding “(g)(4)(i)” in its place; and
17. Adding paragraphs (g)(8)(vi) and
(g)(9).
The additions read as follows:
§1.1031(k)-1 Treatment of deferred ex-
changes.
* * * * *
(g) * * *
(7) * * *
(iii) Personal property that is incidental
to real property acquired in an exchange.
For purposes of this paragraph (g)(7), per-
sonal property is incidental to real proper-
ty acquired in an exchange if—
(A) In standard commercial transac-
tions, the personal property is typically
transferred together with the real proper-
ty; and
(B) The aggregate fair market val-
ue of the incidental personal property
transferred with the real property does
not exceed 15 percent of the aggregate
fair market value of the replacement real
property.
* * * * *
(8) * * *
* * * * *
(vi) Example 6. (A) In 2020, B transfers to C
real property with a fair market value of $1,100,000
and an adjusted basis of $400,000. B’s replacement
property is an office building and, as a part of the
exchange, B also will acquire certain office furniture
in the building that is not real property, which is in-
dustry practice in a transaction of this type. The fair
market value of the real property B will acquire is
$1,000,000 and the fair market value of the personal
property is $100,000.
(B) In a standard commercial transaction, the
buyer of an office building typically also acquires
some or all of the office furniture in the building.
The fair market value of the personal property B
will acquire does not exceed 15 percent of the fair
market value of the office building B will acquire.
Accordingly, under paragraph (g)(7)(iii) of this sec-
tion, the personal property is incidental to the real
property in the exchange and is disregarded in de-

Bulletin No. 2020–30 197 July 20, 2020
termining whether the taxpayer’s rights to receive,
pledge, borrow or otherwise obtain the benefits of
money or other property are expressly limited as
provided in paragraph (g)(6) of this section. Upon
the receipt of the personal property, B recognizes
gain of $100,000 under section 1031(b), the lesser
of the realized gain on the disposition of the relin-
quished property, $700,000, and the fair market val-
ue of the non-like-kind property B acquired in the
exchange, $100,000.
(9) Applicability date. Paragraphs (g)
(7)(iii) and (g)(8)(vi) of this section ap-
ply to exchanges beginning on or after
[EFFECTIVE DATE OF THE FINAL
RULE].
* * * * *
Sunita Lough,
Deputy Commissioner for Services
and Enforcement
(Filed by the Office of the Federal Register on June
11, 2020, 8:45 a.m., and published in the issue of the
Federal Register for June 12, 2020, 85 F.R. 35835)
Notice of Proposed
Rulemaking
Consolidated Net Operating
Losses
REG-125716-18
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemak-
ing; partial withdrawal of a notice of pro-
posed rulemaking.
SUMMARY: This notice of proposed
rulemaking contains proposed amend-
ments to the consolidated return regula-
tions under section 1502 of the Internal
Revenue Code (Code). The proposed reg-
ulations provide guidance implementing
recent statutory amendments to section
172 and withdraw and re-propose certain
sections of proposed regulations issued in
prior notices of proposed rulemaking re-
lating to the absorption of consolidated net
operating loss carryovers and carrybacks.
In addition, the proposed regulations up-
date regulations applicable to consolidat-
ed groups that include both life insurance
companies and other companies to reflect
statutory changes. These proposed regu-
lations would affect corporations that file
consolidated returns.
DATES: Written or electronic comments
and requests for a public hearing must be
received by August 31, 2020. Requests for
a public hearing must be submitted as pre-
scribed in the “Comments and Requests
for a Public Hearing” section.
ADDRESSES: Commenters are strongly
encouraged to submit public comments
electronically. Submit electronic submis-
sions via the Federal eRulemaking Portal
at www.regulations.gov (indicate IRS and
REG-125716-18) by following the online
instructions for submitting comments.
Once submitted to the Federal eRulemak-
ing Portal, comments cannot be edited
or withdrawn. The IRS expects to have
limited personnel available to process
public comments that are submitted on
paper through mail. Until further notice,
any comments submitted on paper will be
considered to the extent practicable. The
Department of the Treasury (Treasury
Department) and the IRS will publish for
public availability any comment submit-
ted electronically (and, to the extent prac-
ticable, any comment submitted on paper)
to its public docket.
Send paper submissions to: CC:PA:LP-
D:PR (REG-125716-18), room 5203,
Internal Revenue Service, PO Box 7604,
Ben Franklin Station, Washington, D.C.
20044.
FOR FURTHER INFORMATION CON-
TACT: Concerning the proposed regula-
tions, Justin O. Kellar at (202) 317-6720,
Gregory J. Galvin at (202) 317-3598, or
William W. Burhop at (202) 317-5363;
concerning submission of comments or
requests for a public hearing, Regina
Johnson at (202) 317-5177 (not toll-free
numbers).
SUPPLEMENTARY INFORMATION:
In the Rules and Regulations section of
this issue of the Federal Register, the
IRS is issuing temporary regulations to
permit consolidated groups that acquire
new members that were members of
another consolidated group to elect to
waive all or part of the pre-acquisition
portion of an extended carryback period
under section 172 of the Code for certain
losses attributable to the acquired mem-
bers. The text of those temporary regula-
tions also serves as the text of §1.1502-
21(b)(3)(ii)(C) and (D) of these proposed
regulations. The proposed and temporary
regulations affect corporations that file
consolidated returns.
Background
These proposed regulations revise
the Income Tax Regulations (26 CFR
part 1) under section 1502 of the Code.
Section 1502 authorizes the Secretary of
the Treasury or his delegate (Secretary)
to prescribe regulations for an affiliated
group of corporations that join in filing
(or that are required to join in filing) a
consolidated return (consolidated group)
to reflect clearly the Federal income tax
liability of the consolidated group and
to prevent avoidance of such tax liabil-
ity. See §1.1502-1(h) (defining the term
“consolidated group”). For purposes of
carrying out those objectives, section
1502 also permits the Secretary to pre-
scribe rules that may be different from
the provisions of chapter 1 of the Code
that would apply if the corporations
composing the consolidated group filed
separate returns. Terms used in the con-
solidated return regulations generally are
defined in §1.1502-1.
These proposed revisions implement
certain statutory amendments made by
Public Law 115-97, 131 Stat. 2054 (De-
cember 22, 2017), commonly referred
to as the Tax Cuts and Jobs Act (TCJA).
Specifically, section 13302 of the TCJA
amended section 172 of the Code, relating
to net operating loss (NOL) deductions,
and sections 13511 through 13519 of the
TCJA amended subchapter L of chapter 1
of the Code (subchapter L), relating to the
taxation of insurance companies. These
proposed regulations also implement fur-
ther statutory amendments to section 172
of the Code made by the Coronavirus Aid,
Relief, and Economic Security Act, Public
Law 116-136, 134 Stat. 281 (March 27,
2020) (CARES Act). Additionally, these
proposed regulations update regulations
under section 1502 concerning consolidat-
ed groups that include life insurance com-
panies and other companies (life-nonlife

July 20, 2020 198 Bulletin No. 2020–30
groups) to implement amendments under
prior tax legislation.
I. Net Operating Loss Deductions
Prior to amendment by the TCJA, sec-
tion 172(a) allowed a taxpayer to use its
aggregate NOL carryovers and carrybacks
to a taxable year to offset all taxable in-
come in the taxable year, and section
172(b)(1) generally permitted taxpayers to
carry back NOLs two years and carry over
NOLs 20 years. The TCJA amended sec-
tion 172 to provide new NOL deduction
rules based on (i) the type of entity gener-
ating the NOL or using an NOL to offset
income, or (ii) the character of the loss
giving rise to an NOL. The CARES Act
extended the carryback period for NOLs
arising in a taxable year beginning after
December 31, 2017, and before January
1, 2021. See part I.A of this Background.
Both the TCJA and the CARES Act also
made other changes to section 172 that
are not pertinent to this notice of proposed
rulemaking.
A. General NOL rules
As amended by section 13302(a)(1)
of the TCJA and section 2303(a)(1) of
the CARES Act, section 172(a)(2) of the
Code allows an NOL deduction for a tax-
able year beginning after December 31,
2020, in an amount equal to the sum of
two factors. The first factor is the aggre-
gate amount of NOLs arising in taxable
years beginning before January 1, 2018
(pre-2018 NOLs), that are carried to such
taxable year. The second factor is the less-
er of (i) the aggregate amount of NOLs
arising in taxable years beginning after
December 31, 2017 (post-2017 NOLs),
that are carried to such taxable year, or (ii)
80 percent of the excess (if any) of (I) tax-
able income computed without regard to
any deductions under sections 172, 199A,
and 250 of the Code, over (II) the aggre-
gate amount of pre-2018 NOLs carried to
the taxable year (this latter calculation,
the 80-percent limitation). The 80-percent
limitation does not apply to taxable years
beginning before January 1, 2021. See
section 172(a)(1). For any such taxable
year, section 172(a)(1) allows an NOL
deduction equal to the aggregate amount
of NOL carryovers and carrybacks to such
year. See id. Moreover, the 80-percent
limitation does not apply to limit the use
of pre-2018 NOLs. See section 172(a)(2)
(A).
Section 13302(b) of the TCJA amend-
ed section 172(b) to generally eliminate
NOL carrybacks but permit post-2017
NOLs to be carried over indefinitely. Sec-
tion 2303(b) of the CARES Act further
amended section 172(b) to require (un-
less waived under section 172(b)(3)) a
five-year carryback for NOLs arising in
taxable years beginning after December
31, 2017, and before January 1, 2021. See
section 172(b)(1)(D)(i).
B. Special NOL rules for nonlife
insurance companies
Section 13302(d) of the TCJA added
sections 172(b)(1)(C) and 172(f), which
provide special rules for insurance com-
panies other than life insurance compa-
nies, as defined in section 816(a) (nonlife
insurance companies, which commonly
are referred to as property and casualty
insurance companies or P&C companies).
Under section 172(f), the 80-percent lim-
itation does not apply to nonlife insurance
companies. Therefore, taxable income of
nonlife insurance companies may be ful-
ly offset by NOL deductions. In addition,
under sections 172(b)(1)(C) and (b)(1)(D)
(i), losses of nonlife insurance companies
arising in taxable years beginning after
December 31, 2020, may be carried back
two years and carried over 20 years. (As
noted in part I.A of this Background, loss-
es arising in taxable years beginning after
December 31, 2017, and before January 1,
2021, are carried back five years.) Thus,
for taxable years beginning after Decem-
ber 31, 2020, the operative rules under
section 172 effectively apply to nonlife
insurance companies in the same manner
as those rules applied prior to enactment
of the TCJA.
C. Special NOL rules for farming losses
Section 13302(c) of the TCJA amend-
ed the special rules for farming losses set
forth in sections 172(b)(1)(F) and 172(h),
as in effect prior to enactment of the TCJA.
For purposes of section 172, a “farming
loss” is the lesser of (i) the amount that
would be the NOL for the taxable year
if only income and deductions attribut-
able to farming businesses (as defined
in section 263A(e)(4) of the Code) were
taken into account, or (ii) the amount of
the NOL for that taxable year. See section
172(b)(1)(B)(ii). Under sections 172(b)(1)
(B)(i) and (b)(1)(D)(i)(II), any portion of
an NOL for a taxable year beginning after
December 31, 2020, that is characterized
as a farming loss is treated as an NOL that
is carried back two years and, as provided
in section 172(b)(1)(A)(ii)(II), is carried
over indefinitely. Farming losses arising
in taxable years beginning after December
31, 2017, and before January 1, 2021, are
carried back five years. Section 172(b)(1)
(D)(i).
II. Insurance Company Provisions
The TCJA also made several changes
to subchapter L (which addresses the tax-
ation of insurance companies) that are rel-
evant to this notice of proposed rulemak-
ing. First, sections 13511(a) and 13511(b)
of the TCJA (i) struck section 805(b)(4),
which generally denied life insurance
companies the NOL deduction provided
in section 172, and (ii) made a conforming
amendment by striking section 810, which
provided a deduction for operations losses
for life insurance companies. As a result,
effective for taxable years beginning after
December 31, 2017, life insurance compa-
nies are entitled to an NOL deduction un-
der the general rules of section 172. Sec-
ond, section 13001(b)(2)(A) of the TCJA
struck section 1201, which imposed a min-
imum tax on capital gains. Third, section
13514(a) of the TCJA struck section 815,
which provided continued deferral of tax
on policyholders surplus accounts. Fourth,
under section 13514(d) of the TCJA, stock
life insurance companies must pay the tax
imposed by section 801 on the balance of
any policyholders surplus accounts (deter-
mined as of the close of such company’s
last taxable year beginning before January
1, 2018) ratably over the first eight taxable
years beginning after December 31, 2017.
Additionally, section 2303(b) of the
CARES Act added a special rule for life
insurance companies. Section 172(b)(1)
(D)(iii) provides that, in the case of a life
insurance company, if an NOL is carried
back under section 172(b)(1)(D)(i)(I) to a
life insurance company taxable year be-

Bulletin No. 2020–30 199 July 20, 2020
ginning before January 1, 2018, such NOL
carryback shall be treated in the same
manner as an operations loss carryback
(within the meaning of section 810 as in
effect before its repeal) of such company
to such taxable year.
Because the repeal of section 810 is ef-
fective for losses arising in taxable years
beginning after December 31, 2017, oper-
ations loss carryovers from taxable years
beginning before January 1, 2018, contin-
ue to be allowed as deductions in taxable
years beginning after December 31, 2017,
in accordance with section 810 as in effect
before its repeal by the TCJA. See Staff of
the Joint Comm. on Tax’n, 115th Cong.,
General Explanation of Public Law 115-
97, at 226 (Dec. 2018).
Final regulations applicable to life-non-
life groups under §1.1502-47 were pub-
lished in the Federal Register on March
18, 1983. See 48 FR 11441 (March 18,
1983) (current life-nonlife regulations).
In the years that followed that publication,
other legislation also significantly altered
the taxation of insurance companies.
Explanation of Provisions
I. Overview
These proposed regulations provide
guidance for consolidated groups re-
garding the application of the 80-percent
limitation, as originally enacted as part
of the TCJA and subsequently amended
by the CARES Act. These proposed reg-
ulations also provide guidance regarding
the application of the NOL carryback
provisions following enactment of the
TCJA and the CARES Act. In addition,
the proposed regulations withdraw and
re-propose certain sections of proposed
regulations issued under section 1502
in prior notices of proposed rulemaking
that relate to the absorption of NOL car-
rybacks and carryovers. See part II of this
Explanation of Provisions for a further
discussion.
These proposed regulations also up-
date §1.1502-47 to reflect certain changes
to the insurance company rules made by
the CARES Act, the TCJA, and prior tax
legislation. See part III of this Explana-
tion of Provisions for a further discussion.
The Treasury Department and the IRS
continue to study other issues pertinent to
life-nonlife groups for purposes of poten-
tial future guidance.
II. Amendments to §1.1502-21
A. In general
Under section 172, as amended by the
TCJA and the CARES Act, NOLs gener-
ated by certain members of a consolidated
group (that is, nonlife insurance compa-
nies), as well as NOLs generated by cer-
tain business activity within a consoli-
dated group (that is, farming losses), are
subject to different rules than other NOLs
in taxable years beginning after December
31, 2020. The proposed regulations imple-
ment these statutory rules with regard to
affiliated groups of corporations that file
consolidated returns.
B. Application of the 80-percent
limitation
1. In General
Section 1.1502-21(a) defines the con-
solidated net operating loss (CNOL) de-
duction for any consolidated return year
as “the aggregate of the net operating loss
carryovers and carrybacks to the year.”
This section specifies that “[t]he net oper-
ating loss carryovers and carrybacks con-
sist of (1) [a]ny CNOLs . . . of the consol-
idated group; and (2) [a]ny net operating
losses of the members arising in separate
return years.” NOL carryovers and car-
rybacks to a consolidated return year are
determined under the principles of section
172 and §1.1502-21. See §1.1502-21(b)
(1). For example, losses permitted to be
absorbed in a consolidated return year
generally are absorbed in the order of the
taxable years in which they arose. See id.
As discussed in part I.A of the Back-
ground, the 80-percent limitation on the
use of post-2017 NOLs to offset taxable
income (other than taxable income of
nonlife insurance companies) applies to
taxable years beginning after December
31, 2020. Consistent with longstanding
provisions in §1.1502-21(b)(1), these pro-
posed regulations generally implement
the 80-percent limitation on a consoli-
dated group basis by limiting a group’s
deduction of post-2017 NOLs for any
such taxable year to the lesser of (1) the
aggregate amount of post-2017 NOLs
carried to such year, or (2) 80 percent of
the excess (if any) of the group’s consol-
idated taxable income (CTI) (computed
without regard to any deductions under
sections 172, 199A, and 250) over the ag-
gregate amount of pre-2018 NOLs carried
to such year. Thus, the amount allowed
as a deduction for a particular consolidat-
ed return year beginning after December
31, 2020, equals the sum of (1) pre-2018
NOLs carried to that year (see section
172(a)(2)(A)), and (2) post-2017 NOLs
carried to that year after applying the
80-percent limitation (see section 172(a)
(2)(B)). Additionally, the proposed regu-
lations provide special rules applicable to
consolidated groups that include at least
one nonlife insurance company, as well as
rules applicable to losses arising in a sepa-
rate return limitation year (SRLY).
2. Application of the 80-Percent
Limitation to Groups Comprised of
Nonlife Insurance Companies, Members
Other than Nonlife Insurance Companies,
or Both
Application of the 80-percent limita-
tion depends on the status of the entity
whose income is being offset, rather than
on the status of the entity whose loss is
being absorbed. As noted in part I.B of the
Background, section 172(f) provides that
the 80-percent limitation does not apply
when the taxable income of a nonlife in-
surance company is offset by an NOL car-
ryback or carryover.
To implement the special rules under
section 172 regarding income of non-
life insurance companies, these proposed
regulations clarify that application of the
80-percent limitation within a consolidat-
ed group to post-2017 NOLs (post-2017
CNOL deduction limit) depends on the
status of the entity that generated the in-
come being offset in a consolidated return
year beginning after December 31, 2020.
Therefore, if a group is comprised solely
of members other than nonlife insurance
companies during a consolidated return
year beginning after December 31, 2020,
the post-2017 CNOL deduction limit for
the group for that year is determined by
applying the 80-percent limitation to all
of the group’s consolidated taxable in-
come for that year. In contrast, if a group

July 20, 2020 200 Bulletin No. 2020–30
is comprised solely of nonlife insurance
companies during a consolidated return
year beginning after December 31, 2020,
the post-2017 CNOL deduction limit for
the group for that year simply equals the
group’s CTI less the aggregate amount of
pre-2018 NOLs carried to that year.
A two-factor computation is required if
a consolidated group is comprised of both
nonlife insurance companies and other
members in a consolidated return year
beginning after December 31, 2020. In
general, under these proposed regulations,
the post-2017 CNOL deduction limit for
the group would equal the sum of two
amounts.
The first amount relates to the income
of those members that are not nonlife
insurance companies (residual income
pool). This amount equals the lesser of (i)
the aggregate amount of post-2017 NOLs
carried to that year, or (ii) 80 percent of
the excess of the group’s CTI for that year
(determined without regard to income,
gain, deduction, or loss of members that
are nonlife insurance companies and with-
out regard to any deductions under sec-
tions 172, 199A, and 250) over the aggre-
gate amount of pre-2018 NOLs carried to
that year that are allocated to the positive
net income of members other than nonlife
insurance companies.
The second amount relates to the in-
come of those members that are nonlife
insurance companies (nonlife income
pool). This amount equals 100 percent of
the group’s CTI for the year (determined
without regard to any income, gain, de-
duction, or loss of members that are not
nonlife insurance companies), less the
aggregate amount of pre-2018 NOLs car-
ried to that year that are allocated to the
positive net income of nonlife insurance
company members.
For purposes of computing the forego-
ing amounts, pre-2018 NOLs are allocated
pro rata between the two types of income
pools in the group (that is, the income
pool for nonlife insurance companies and
the income pool for all other members, re-
spectively). This allocation is based on the
relative amounts of positive net income in
each pool in the particular consolidated
return year.
For example, assume that P, PC1,
and PC2 are members of a calendar-year
consolidated group (P Group). PC1 and
PC2 are nonlife insurance companies,
and P is a holding company. In 2017, the
P Group has a CNOL of $10 (that is, a
pre-2018 NOL). In 2021, P has income
of $50, PC1 has income of $70, and PC2
has a loss of $20. Therefore, the P Group
has $100 of CTI in 2021. In 2022, the P
Group has a $100 CNOL (all of which is
attributable to PC1 and PC2) that is car-
ried back to 2021. Under sections 172(a)
(2)(B) and 172(f), the P Group’s 2022
CNOL would offset P’s 2021 income
subject to the 80-percent limitation, but
it would offset PC1’s 2021 income with-
out limitation.
The total amount allowed as a CNOL
deduction in the P Group’s 2021 consol-
idated return year equals the aggregate
amount of pre-2018 NOLs carried to that
year plus the P Group’s post-2017 CNOL
deduction limit for that year. The P Group
has $10 of pre-2018 NOLs carried to 2021.
Under section 172(a)(2)(A) and §1.1502-
21(b)(1), this loss would offset $10 of the
P Group’s 2021 income.
Under these proposed regulations, the
P Group’s post-2017 CNOL deduction
limit for its 2021 consolidated return year
is equal to the sum of the following two
amounts. The first amount reflects the ap-
plication of the 80-percent limitation to
P’s income (that is, the residual income
pool). This amount is $36, which equals
the lesser of (i) the aggregate amount of
the P Group’s post-2017 NOLs carried to
its 2021 consolidated return year ($100),
or (ii) the product obtained by multiply-
ing 80 percent by $45 (the excess of $50
(P’s 2021 income) over $5 (the pro rata
amount of pre-2018 NOLs allocated to P’s
income)).
The second amount reflects the ap-
plication of section 172(f) to the income
of PC1 and PC2 (that is, the nonlife in-
come pool). This amount is $45, which is
obtained by subtracting $5 (the pro rata
amount of pre-2018 NOLs allocated to the
income of PC1 and PC2) from $50 (PC1’s
2021 income of $70 - PC2’s 2021 loss of
$20).
Thus, the P Group has a CNOL de-
duction of $91 for 2021, which includes
(1) the aggregate amount of pre-2018
NOLs carried to 2021 ($10), plus (2) the P
Group’s post-2017 deduction limit ($36 +
$45 = $81). The P Group has $9 of CTI in
2021 and carries over the remaining $19
of its 2022 CNOL ($100 - $81) to future
taxable years.
If a group’s nonlife insurance company
members have net income for a particular
consolidated return year beginning after
December 31, 2020, and its other members
have a net loss for that year (or vice-ver-
sa), these proposed regulations modify the
foregoing computation to ensure that the
group’s post-2017 CNOL deduction limit
for that year is not overstated. If the group’s
nonlife insurance company members have
a loss for the consolidated return year and
its other members have income for that
year, the group’s post-2017 CNOL deduc-
tion limit equals the lesser of (i) the aggre-
gate amount of post-2017 CNOLs carried
to the year, or (ii) 80 percent of the excess
of the group’s CTI (determined without re-
gard to any deductions under sections 172,
199A, and 250) over the aggregate amount
of pre-2018 NOLs carried to that year.
That is, because none of the group’s net
income has been produced by the group’s
P&C insurance operations, the 80-percent
limitation will apply to all CTI for the year.
Conversely, if the group’s nonlife insurance
company members have income for the
consolidated return year and its other mem-
bers have a loss for that year, the group’s
post-2017 CNOL deduction limit equals
the group’s CTI less the aggregate amount
of pre-2018 NOLs carried to that year. That
is, because all net income of the group has
been produced by the operation of mem-
bers that are nonlife insurance companies
(whose income is not subject to the 80-per-
cent limitation), all CTI for the year may be
offset by post-2017 CNOL deductions.
In formulating these proposed regula-
tions, the Treasury Department and the IRS
considered an alternative approach. Fol-
lowing the enactment of the TCJA and the
CARES Act, section 172 provides special
rules applicable to entities of different tax
status, both with regard to the use of NOLs
to offset income and with regard to the man-
ner in which NOLs are carried over. This
alternative approach would have required a
group to first offset income and loss items
within a pool of nonlife insurance compa-
nies and a pool of other members for all pur-
poses of section 172 applicable to taxable
years beginning after December 31, 2020.
In other words, the alternative approach
would have applied a pooling concept be-
yond merely determining the group’s post-

Bulletin No. 2020–30 201 July 20, 2020
2017 CNOL deduction limit, but would
have required a group’s CTI to be allocated
between the operations of its nonlife in-
surance company members, which can be
offset fully by CNOL deductions, and the
operations of its other members subject to
the 80-percent limitation. This alternative
approach would also have applied similar
rules to allocate CNOLs within groups in-
cluding both nonlife insurance companies
and other members to consistently identify
the portions of CNOLs allocable to nonlife
insurance company members, which are
subject to different carryover rules than
those of other members.
Specifically, this alternative approach
would have adopted a threshold compu-
tational step under which the principles
of §1.1502-21(b)(2)(iv)(B) would apply
to offset the income and loss items sole-
ly among members that are nonlife insur-
ance companies. The remaining members
of the group would be subject to a parallel
offset. Following this initial offsetting of
pooled items, §1.1502-21(b)(2)(iv)(B) (or
the principles of §1.1502-21(b)(2)(iv)(B),
in the case of a group with CTI) would ap-
ply to allocate a post-2017 CNOL among
all group members with taxable income.
This approach contrasts with the histori-
cal application of §1.1502-21(b)(2)(iv)
(B), under which a CNOL for a year is at-
tributed pro rata to all members of a group
that produce net loss, without first netting
among entities of the same type. This
historical approach developed before the
enactment of the TCJA, and thus before
special carryover rules applied to nonlife
insurance companies.
The Treasury Department and the IRS
request comments regarding the proposed
regulations’ methodology for computing
a group’s post-2017 CNOL deduction
limit. The Treasury Department and the
IRS also request comments regarding
the alternative approach described in the
preceding two paragraphs to identify the
portion of the CNOL to which the special
carryback and carryover rules of section
172(b) (regarding nonlife insurance com-
pany losses) would apply.
3. Losses Arising in a SRLY
Generally, an unaffiliated corporation
determines its taxable income by offset-
ting its NOLs against its income. In con-
trast, a consolidated group member gener-
ally offsets its NOLs against the income
of all group members. See §§1.1502-11
and 1.1502-21. However, an exception to
this general rule for consolidated groups
applies to a group’s use of NOLs incurred
by a member (SRLY member) in a taxable
year other than a year of the current group
(that is, a separate return limitation year
or SRLY). A SRLY member may carry its
NOLs that arose in a SRLY into the con-
solidated group, but those NOLs can be
absorbed by the group only to the extent
that the SRLY member generates income
on a separate-entity basis while a member
of the group (that is, to the extent of the
amount of net income generated by the
SRLY member as a member of the group).
See generally §1.1502-21(c)(1)(i) (setting
forth the general SRLY limitation rule).
The SRLY rules attempt to replicate, to
the extent possible, separate-entity usage
of the SRLY attributes of the SRLY mem-
ber. In other words, the SRLY regulations
were designed to obtain an absorption re-
sult that varies as little as possible from
the absorption that would have occurred if
the SRLY member had not joined the con-
solidated group.
To approximate a SRLY member’s ab-
sorption of NOLs on a separate-entity ba-
sis, the SRLY member’s net contribution
to the CTI of the group is measured cu-
mulatively over the period during which
the corporation is a member of the group
by using what is commonly referred to as
a “cumulative register.” The cumulative
register tracks the SRLY member’s net
positive (or negative) contribution to the
income of the group. See §1.1502-21(c)
(1)(i). If the SRLY member has net posi-
tive income in a consolidated taxable year,
the member’s cumulative register increas-
es. See §1.1502-21(c)(1)(i)(A) and (C).
In turn, if the losses of a SRLY member
(including SRLY-limited NOL carryovers)
are absorbed by the group, the SRLY
member’s cumulative register decreases.
See §1.1502-21(c)(1)(i)(B) and (C).
These proposed regulations would
modify the cumulative register rules to
reflect the application of the 80-percent
limitation under section 172(a)(2)(B).
Under the proposed regulations, as in cur-
rent §1.1502-21, the full amount of the
SRLY member’s current-year income (or
current-year absorbed loss) increases (or
decreases) the member’s cumulative reg-
ister. However, when the cumulative reg-
ister is reduced to account for the group’s
absorption of any SRLY member’s NOLs
that are subject to the 80-percent limita-
tion (whether or not those losses are sub-
ject to the SRLY limitation), the amount
of the reduction equals the full amount of
income that would be necessary to support
the deduction by the SRLY member.
For example, after absorption of any
pre-2018 NOLs of a SRLY member, the
SRLY member (other than a nonlife insur-
ance company) would need to have $100
of remaining income to enable the group
to absorb $80 of the SRLY member’s SR-
LY-limited post-2017 NOLs in a taxable
year beginning after December 31, 2020
(that is, 80 percent of the excess of $100
over $0). Therefore, upon the group’s de-
duction of $80 of NOL (SRLY or other-
wise) of the SRLY member, the cumula-
tive register would be reduced to reflect
the full $100 of income, not just the $80
of losses absorbed by the group.
The Treasury Department and the IRS
have determined that, without the adjust-
ment described, the SRLY member would
achieve a different result as a member of
a group than as a stand-alone entity. Such
result would be contrary to the objective
of the SRLY rules, which attempt to repli-
cate the hypothetical separate-entity treat-
ment of the SRLY member. Therefore,
the above-described adjustment would be
necessary to ensure that the SRLY mem-
ber achieves the same Federal income tax
result as if the SRLY member continued to
be a stand-alone entity.
For example, assume that P owns 79
percent of S, and that neither P nor S is a
nonlife insurance company. In Year 1 (a
taxable year beginning after December 31,
2020), S incurs an $800 NOL that it car-
ries over into Year 2. S has no other NOL
carryovers or carrybacks. In Year 2, S has
$400 of income; accordingly, S’s 80-per-
cent limitation for Year 2 is $320 (that is,
the lesser of $800 or 80 percent of the ex-
cess of $400 over $0). As a result, S may
use $320 of its $800 Year 1 NOL to offset
$320 of its $400 Year 2 income. Under
section 172(b)(2), the amount of the $800
Year 1 NOL that is carried into Year 3 is
the excess of the entire $800 NOL over
$320, or $480. S’s ability to use any por-
tion of its remaining Year 1 NOL in Year 3

July 20, 2020 202 Bulletin No. 2020–30
is dependent on its generation of addition-
al taxable income in Year 3.
Now assume that, instead of S filing a
separate return for Year 2, P acquires the
remaining stock of S at the end of Year 1,
and P and S file a consolidated return for
Year 2. The P group has $1,000 of income
in Year 2, of which S has $400. Thus, S’s
cumulative register increases from $0 to
$400. Because S’s $800 Year 1 NOL arose
in a SRLY, the absorption of this NOL in
Year 2 is subject to both the SRLY limita-
tion and the 80-percent limitation. Under
the proposed regulations, the P group may
use only $320 (that is, the lesser of $800 or
80 percent of the excess of $400 over $0)
of S’s Year 1 SRLY NOL to offset the P
group’s Year 2 income. Upon the absorp-
tion of $320 of S’s Year 1 SRLY NOL, S’s
cumulative register is reduced by $400
(that is, the full amount of income neces-
sary to support the $320 deduction of S’s
Year 1 SRLY NOL) to $0. The remainder
of S’s Year 1 SRLY NOL is carried over.
If S’s cumulative register were not
reduced by the full amount of income
necessary to support the deduction, the P
group’s ability to use S’s loss would ex-
ceed S’s ability to use the loss if S had not
joined the P group. As an illustration, as-
sume further that, in Year 3, the P group
has $200 of income, with no net amount of
income or loss attributable to S. Because
S’s cumulative register would remain at
$0, the P group would not be able to off-
set any of its $200 Year 3 income with S’s
Year 1 SRLY NOL. If S’s cumulative reg-
ister were reduced solely by the amount of
the SRLY NOL deducted in Year 2 ($320),
S would have $80 remaining in its cumu-
lative register ($400 - $320), and the P
group could absorb an additional $64 (that
is, the lesser of $480 or 80 percent of the
excess of $80 over $0) of S’s remaining
Year 1 SRLY NOL in Year 3. In contrast,
if S had not joined the P group and had not
generated any income in Year 3, it would
not have been able to use any of its $480
remaining Year 1 SRLY NOL in Year 3.
In other words, S would have been able to
use a total of only $320 of its Year 1 SRLY
NOL in Years 2 and 3.
Therefore, absent an adjustment to
S’s cumulative register to account for the
80-percent limitation, S would achieve
a different result as a member of a con-
solidated group than if S had remained a
stand-alone entity. As explained earlier in
this part II.B.3 of this Explanation of Pro-
visions, such a result would be inconsis-
tent with the purpose of the SRLY regime.
See the preamble to TD 8823 published in
the Federal Register July 2, 1999 (64 FR
36092).
C. Recomputation of amount of CNOL
attributable to each member
Section 1.1502-21(b)(2)(i) general-
ly provides that, if a group has a CNOL
that is carried to another taxable year, the
CNOL is apportioned among the group’s
members. For this purpose, §1.1502-21(b)
(2)(iv) provides a fraction, the numera-
tor of which is the separate NOL of each
member for the consolidated return year
of the loss (determined by taking into ac-
count only the member’s items of income,
gain, deduction, and loss), and the denom-
inator of which is the sum of the separate
NOLs of all members for that year.
If a member’s portion of a CNOL is ab-
sorbed or reduced on a non-pro rata basis,
the percentage of the CNOL attributable
to each member must be recomputed to
reflect the proper allocation of the remain-
ing CNOL. For instance, if a portion of
a CNOL allocable to a nonlife insurance
company is carried back to and absorbed
in a prior taxable year under the special
rule for nonlife insurance companies that
applies for taxable years beginning after
December 31, 2020 (see part I.B of the
Background), all or some portion of the
CNOL allocable to the nonlife insurance
company is reduced even though the por-
tion of the CNOL allocable to other mem-
bers remains untouched. Therefore, the
allocation of the remaining CNOL must
be recomputed.
Accordingly, these proposed regula-
tions provide that, if a member’s portion
of a CNOL is absorbed or reduced on a
non-pro rata basis, the percentage of the
CNOL attributable to each member is re-
computed. The recomputed percentage of
the CNOL attributable to each member
equals the remaining CNOL attributable to
the member at the time of the recomputa-
tion, divided by the sum of the remaining
CNOL attributable to all of the remaining
members at the time of the recomputation.
In other words, if at the time of the recom-
putation a member’s attributable portion
of the group’s remaining CNOL equals
$20, and the sum of the remaining CNOL
attributable to all of the group’s remaining
members equals $80, the recomputed per-
centage of the CNOL attributable to the
member would equal 25 percent.
Proposed regulations (REG-101652-
10) published in the Federal Register
(80 FR 33211) on June 11, 2015 (2015
proposed regulations) contained a simi-
lar rule (see §1.1502-21(b)(2)(iv)(B)(2)
of the 2015 proposed regulations). These
proposed regulations withdraw proposed
§1.1502-21(b)(2)(iv)(B)(2) of the 2015
proposed regulations and re-propose sub-
stantially similar language in new pro-
posed §1.1502-21(b)(2)(iv)(B)(2).
D. Farming losses
For a taxable year beginning after De-
cember 31, 2020, section 172(b)(1)(B)
permits the portion of a taxpayer’s NOL
for the taxable year that is a farming loss
to be carried back two years. Under that
provision, the term “farming loss” means
the lesser of the amount that would be the
NOL if only the income and deductions
attributable to farming businesses (as de-
fined in section 263A(e)(4)) were taken
into account, or the amount of a taxpayer’s
NOL for the year.
Whereas the special nonlife insurance
company rules in section 172 apply based
on the status of the entity that generated
the loss, the special farming loss carry-
back rules in section 172 apply based on
the character of the loss; that is, whether
the loss resulted from farming activity.
The special rule for farming losses cre-
ates a situation similar to that addressed
in United Dominion Industries, Inc. v.
United States, 532 U.S. 822 (2001), which
involved the calculation within a consol-
idated group of a product liability loss
(PLL). A PLL was a “special status loss”
that was subject to a 10-year carryback pe-
riod and that was equal to the aggregate
of all members’ product liability expenses
(PLEs), limited by the NOL for the year. A
consolidated group generally is treated as
having a single, unitary CNOL for a tax-
able year (based on all items of income and
loss in the group) that is allocated among
members only for specified purposes, in-
cluding carrybacks and carryovers to oth-
er taxable years. See §1.1502-21(e) (de-

Bulletin No. 2020–30 203 July 20, 2020
fining the term “CNOL”); §1.1502-11(a)
(setting forth the general computation for
determining CTI). Because the regula-
tions under section 1502 did not allocate
the CNOL for purposes of calculating the
limitation on PLL, the Supreme Court
held that the amount of a group’s PLL was
limited by the entire amount of the group’s
CNOL.
In a notice of proposed rulemaking
(REG-140668-07) published in the Fed-
eral Register (77 FR 57452) on Septem-
ber 17, 2012 (2012 proposed regulations),
the Treasury Department and the IRS
provided rules regarding the apportion-
ment of CNOLs that contain a component
portion of a special status loss, such as a
corporate equity reduction interest loss or
a specified liability loss. Such losses, like
farming losses and the PLLs that were
considered in United Dominion, were
subject to special carryback rules. The
2012 proposed regulations effectuated the
holding in United Dominion that a group’s
CNOL, which is the limit on the amount
of a group’s special status losses, may be
generated anywhere in the group. See 77
FR 57452, 57458. On that basis, the 2012
proposed regulations apportioned such
special status losses to each group mem-
ber that generated a loss in the year in
which the special status loss was incurred,
regardless of whether any specific mem-
ber had undertaken the activities that gen-
erated the expenses that effectively were
granted special status. See id.
Consistent with the 2012 proposed
regulations, these proposed regulations
re-propose, in modified form, a specif-
ic rule regarding the apportionment of
CNOLs that include farming losses aris-
ing in taxable years beginning after De-
cember 31, 2020, or other special status
losses. See proposed §1.1502-21(b)(2)
(iv)(D). (Due to the TCJA’s removal of
the corporate equity reduction interest
loss provisions in former section 172(g),
proposed §1.1502-21(b)(2)(iv)(D) does
not contain explicit rules governing such
losses.) Under proposed §1.1502-21(b)(2)
(iv)(D), the portion of the CNOL consti-
tuting a special status loss is apportioned
to each group member separately from
the remainder of the CNOL under the
method provided in §1.1502-21(b)(2)(iv).
Consistent with the 2012 proposed regu-
lations, this apportionment occurs without
separate inquiry into whether a particular
member actually incurred the special sta-
tus loss. See 77 FR 57452, 57458. These
proposed regulations withdraw §1.1502-
21(b)(2)(iv)(C), as proposed in the 2012
proposed regulations. The Treasury De-
partment and the IRS request comments
regarding this approach.
E. Elections to waive portions of the
five-year carryback period under section
172(b)(1)(D)(i)
Temporary regulations in the Rules
and Regulations section of this issue of
the Federal Register add new paragraphs
(b)(3)(ii)(C) and (D) to the regulations
in §1.1502-21. The temporary regula-
tions provide rules to permit consolidat-
ed groups that acquire new members that
were members of another consolidated
group to elect to waive all or part of the
pre-acquisition portion of an extended
carryback period under section 172 for
certain losses attributable to the acquired
members. The text of those regulations
also serves as the text of §1.1502-21(b)(3)
(ii)(C) and (D) of these proposed regula-
tions. The preamble to the temporary reg-
ulations explains the amendments.
III. Amendments to §1.1502-47
A. Overview
1. Legislative Background at the Time the
Current Life-Nonlife Regulations Were
Promulgated
The Life Insurance Company Income
Tax Act of 1959, Public Law 86-69, 73
Stat. 112 (June 25, 1959), established a
three-phase system of taxation for life in-
surance companies (also referred to as life
companies). Under the first phase of this
three-phase system (phase 1), a life com-
pany was taxed on the lesser of its taxable
investment income (TII) or its gain from
operations (GO). If a company’s GO ex-
ceeded its TII, the company was taxed on
50 percent of such excess (phase 2). The
other half of the GO in excess of TII was
added, along with certain other items, to
the policyholders surplus account, which
was taxed when distributed to sharehold-
ers of a stock company (phase 3). Life
companies also were permitted certain
deductions that were unique to insurance
companies, such as increases in reserves
to the extent not funded out of the policy-
holders’ share of investment income.
Prior to the enactment of the Tax Re-
form Act of 1976, Public Law 94-455, 90
Stat. 1520 (October 4, 1976) (1976 Act),
life companies were prohibited from filing
consolidated returns with nonlife com-
panies, including both nonlife insurance
companies and other types of corpora-
tions. This prohibition resulted in part
from historical differences between the
taxation of life companies and nonlife
companies.
Section 1507 of the 1976 Act (90 Stat.
1520, 1739-41) permitted life companies
to consolidate with nonlife companies,
subject to additional restrictions that do
not apply to a regular consolidated group.
Section 1503(c)(1) (as amended by the
1976 Act and subsequent tax legislation)
provides that, if the nonlife company
members of a life-nonlife group (nonlife
members) have a loss for the taxable year,
then under regulations to be issued by the
Secretary, the amount of the loss that can-
not be carried back and absorbed by the
taxable income of the nonlife members
can be taken into account in determining
the CTI of the group only to the extent
of the lesser of 35 percent of such loss or
35 percent of the taxable income of the
life company members of the group (life
members). Further, section 1503(c)(2) (as
so amended) provides that the losses of a
recent nonlife affiliate may not be used by
a life company before the sixth taxable
year the companies have been members of
the same affiliated group.
2. Current Life-Nonlife Regulations
The current life-nonlife regulations ad-
opted a subgroup method for computing a
life-nonlife group’s CTI. Under the sub-
group method, the nonlife members and
the life members generally are treated as if
the members compose two separate con-
solidated groups, with certain exceptions
(including intercompany transactions,
as defined in §1.1502-13(b)(1)(i)). Thus,
each of the life subgroup and the nonlife
subgroup separately calculates its taxable
income. Subgroup losses that are eligible
to be carried back must be carried back to
offset subgroup income in prior taxable

July 20, 2020 204 Bulletin No. 2020–30
years before being used to offset income
of the other subgroup in the current tax-
able year, and subgroup losses may not be
carried back to offset income of the other
subgroup in prior taxable years.
Further, a carryback of a subgroup loss
may “bump” the loss of the other sub-
group used in the carryback year (that is,
the loss that is carried back may supplant a
loss of the other subgroup in the carryback
year). See §1.1502-47(a)(2)(ii). For exam-
ple, assume that life subgroup losses were
used to offset nonlife subgroup income
in Year 1. If the nonlife subgroup incurs
losses in Year 2 that are eligible to be car-
ried back to Year 1, those Year 2 nonlife
subgroup losses (rather than the Year 1 life
subgroup losses) would be used to offset
the nonlife subgroup’s income in Year 1.
The “bumped” life subgroup losses from
Year 1 then would be carried over to fu-
ture taxable years.
3. Legislative Changes Regarding the
Taxation of Insurance Companies Since
Promulgation of the Current Life-Nonlife
Regulations
The Deficit Reduction Act of 1984,
Public Law 98-369, 98 Stat. 494 (July 18,
1984) (1984 Act), significantly altered the
taxation of life companies. The 1984 Act
replaced the three-phase system with a
statutory mechanism similar to that used
to calculate the Federal income tax liabili-
ty of other corporate taxpayers. Specifical-
ly, section 801(a) imposes an income tax
on the life insurance company taxable in-
come (LICTI) of a life company, and sec-
tion 801(b) defines “life insurance compa-
ny taxable income” as life insurance gross
income less life insurance deductions.
The legislative history of the 1984 Act
indicates that, in part, Congress changed
the taxation of life companies in order to
simplify the Code. See Staff of the Joint
Comm. on Tax’n, 98th Cong., General
Explanation of the Revenue Provisions of
the Deficit Reduction Act of 1984, at 577
(December 31, 1984).
In turn, the Tax Reform Act of 1986,
Public Law 99-514, 100 Stat. 2085 (Oc-
tober 22, 1986) (1986 Act), modified the
taxation of nonlife insurance companies.
Prior to the 1986 Act, nonlife insurance
companies were permitted to defer un-
earned premium income while currently
deducting the expenses associated with
earning such income, which created a
timing mismatch between the income and
expenses of nonlife insurance companies.
The 1986 Act addressed this mismatch by
requiring a nonlife insurance company to
reduce its deduction for unearned premi-
um income by 20 percent. The 1986 Act
also repealed special rates, deductions,
and exemptions for small mutual insur-
ance companies and added a single pro-
vision (section 831(b)) for both small mu-
tual insurance companies and small stock
insurance companies.
Lastly, the TCJA made significant ad-
ditional changes to the taxation of life in-
surance companies, and the CARES Act
added a special rule for such companies
in section 172(b)(1)(D)(iii). These chang-
es are described in detail in part II of the
Background.
B. Summary of proposed changes to
§1.1502-47
As a result of changes in the taxation
of insurance companies under the TCJA
and prior legislation, various provisions
in §1.1502-47 currently are outdated.
Accordingly, to the extent preempted by
statute, the current regulations have no
application. These proposed regulations
update §1.1502-47 by: (1) removing para-
graphs implementing statutory provisions
that have been repealed; (2) revising para-
graphs implementing statutory provisions
that have been substantially revised; (3)
updating terminology and statutory ref-
erences to account for other statutory
changes; and (4) removing paragraphs
that contain obsolete transition rules or
that are no longer applicable because the
effective dates in the current life-nonlife
regulations have passed.
1. Removal of Paragraphs Due to
Repealed Statutory Provisions
Certain paragraphs in §1.1502-47 are
no longer relevant to the calculation of
life-nonlife CTI because of the repeal
of the three-phase system by the 1984
Act and later amendments to the Code.
Therefore, these proposed regulations
remove numerous paragraphs including
current §§1.1502-47(k) and (l), which
provide rules for calculating consolidat-
ed TII and the consolidated GO or loss
from operations (LO). These proposed
regulations also remove (i) §1.1502-47(f)
(7)(ii), which generally provides that the
consolidated tax liability of a life-nonlife
group includes the tax described by sec-
tion 1201, and (ii) §1.1502-47(o), which
provides rules for calculating the alterna-
tive tax imposed by section 1201 on con-
solidated capital gain. (As noted in part II
of the Background, section 1201 was re-
pealed by the TCJA.)
2. Updates Reflecting Substantially
Revised Statutory Provisions
These proposed regulations also up-
date §1.1502-47 to reflect changes to cer-
tain statutory provisions since the current
life-nonlife regulations were promulgated.
For example, these proposed regulations
modify current §1.1502-47(f)(5) (relating
to the dividends received deduction) to re-
flect changes by the 1986 Act to sections
805(a)(4) and 818(e)(2) (for life compa-
nies) and to reflect changes by the 1986 Act
and the Technical and Miscellaneous Rev-
enue Act of 1988, Public Law 100-647, 102
Stat. 3342 (November 10, 1988), respec-
tively, to sections 832(b)(5)(B) and (g) (for
nonlife insurance companies). Under mod-
ified §1.1502-47(f)(5) (that is, proposed
§1.1502-47(d)(5)), dividends received by
an insurance company from another inclu-
dible member of the group are treated as if
the group were not filing a consolidated re-
turn. To reflect the repeal of section 815 by
the TCJA, these proposed regulations also
remove current §1.1502-47(g)(3) (which
provides that life-nonlife groups must in-
clude any amounts subtracted under sec-
tion 815 from life members’ policyholders
surplus accounts).
Additionally, these proposed regu-
lations update the rules relating to con-
solidated LICTI to reflect the repeal of
the three-phase system by the 1984 Act
and other changes to the taxation of life
companies. These proposed regulations
also move certain provisions in current
§1.1502-47(k) (consolidated TII) and (l)
(consolidated GO or LO) that remain ap-
plicable following the repeal of the three-
phase system to revised paragraph (g), and
they implement the special rule for life
insurance companies in section 172(b)(1)
(D)(iii) under the CARES Act.

Bulletin No. 2020–30 205 July 20, 2020
3. Revisions to Account for Other
Statutory Changes
These proposed regulations also update
terminology and citations to the Code to
reflect current law. For example, these
proposed regulations remove references
to section 821 and mutual insurance com-
panies because the statutory provisions
regarding mutual insurance companies
were repealed by the 1986 Act. Addition-
ally, these proposed regulations replace
references to section 802 with references
to section 801 because section 802 was
repealed by the 1984 Act. Similarly, these
proposed regulations replace references to
the LO with references to the NOL deduc-
tion under section 172 to reflect the repeal
of section 810 by the TCJA.
4. Removal of Obsolete Transition Rules
and Other Rules that no Longer are
Applicable
These proposed regulations propose the
removal of transition rules regarding the
implementation of the current life-nonlife
regulations, since those transition rules ap-
ply to carryovers that either have been ab-
sorbed or have expired. For example, the
proposed regulations propose the removal
of current §1.1502-47(h)(3) (setting forth
transition rules for NOLs attributable to tax-
able years ending before January 1, 1981),
current §1.1502-47(k)(6) (containing a sim-
ilar rule for certain capital loss carryovers),
and current §1.1502-47(e)(4) (granting cer-
tain life-nonlife groups permission to dis-
continue filing a consolidated return for the
group’s first taxable year for which the cur-
rent life-nonlife regulations were effective).
These proposed regulations also would
remove cross-references to certain pri-
or-law regulations that are designated with
an “A” because those regulations general-
ly are applicable to years ending in 1999
or earlier. Additionally, these proposed
regulations would remove cross-referenc-
es to §1.1502-18 (relating to inventory
adjustments) because that section does not
apply to taxable years beginning after July
11, 1995.
Proposed Effective/Applicability Dates
The regulations in proposed §1.1502-
21 generally are proposed to be applicable
to losses arising in taxable years beginning
after the date of publication in the Federal
Register of a Treasury decision adopting
these proposed rules as final regulations
(Publication Date). The regulations in
proposed §§1.1502-1 and 1.1502-47 gen-
erally are proposed to be applicable to tax-
able years beginning after the Publication
Date. However, a taxpayer deducting post-
2017 NOLs on (1) original returns, (2)
amended returns, or (3) applications for
tentative carryback adjustments, filed for
taxable years beginning on or before the
Publication Date, may rely on these pro-
posed regulations concerning the Federal
income tax treatment of post-2017 NOLs
with regard to those filings if the taxpayer
relies on the proposed regulations in their
entirety and in a consistent manner.
Special Analyses
I. Regulatory Planning and Review –
Economic Analysis
Executive Orders 13563, 13771, and
12866 direct agencies to assess costs and
benefits of available regulatory alterna-
tives and, if regulation is necessary, to se-
lect regulatory approaches that maximize
net benefits (including potential econom-
ic, 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 harmoniz-
ing rules, and of promoting flexibility.
These proposed regulations have been
designated as subject to review under
Executive Order 12866 pursuant to the
Memorandum of Agreement (April 11,
2018) between the Treasury Department
and the Office of Management and Bud-
get (OMB) regarding review of tax reg-
ulations. The Office of Information and
Regulatory Affairs has designated the pro-
posed regulations as significant under sec-
tion 1(b) of the Memorandum of Agree-
ment. Accordingly, OMB has reviewed
the proposed regulations.
A. Background and Need for Regulations
In general, taxpayers whose deduc-
tions exceed their income generate a net
operating loss (NOL), calculated under
the rules of section 172. Section 172 also
governs the use of NOLs generated in
other years to offset taxable income in
the current year. Regulations issued un-
der the authority of section 1502 may be
used to govern how section 172 applies
to consolidated groups of C corporations.
In general, a consolidated group gener-
ates a combined NOL at an aggregate
level (CNOL), with the CNOL generally
equal to the loss generated from treating
the consolidated group as a single entity.
Under regulations promulgated prior to
the Tax Cuts and Jobs Act (TCJA), the
allowed CNOL deduction was equal to
the lesser of the CNOL carryover or the
combined taxable income of the group
(before the CNOL deduction).
The TCJA and the Coronavirus Aid, Re-
lief, and Economic Security Act (CARES
Act) made several changes to section 172.
First, the TCJA and the CARES Act disal-
lowed the carry back of NOLs generated
in taxable years beginning after 2020, ex-
cept for farming losses and losses incurred
by corporations that are insurance compa-
nies other than life insurance companies
(nonlife insurance companies). Second,
the TCJA and the CARES Act limited the
NOL deduction in taxable years beginning
after 2020 for NOLs generated in 2018
or later (post-2017 NOLs) to 80 percent
of taxable income determined after the
deduction for pre-2018 NOLs but before
the deduction for post-2017 NOLs. This
80-percent limitation does not apply to
nonlife insurance companies.
These proposed regulations implement
the changes to section 172 in the context
of consolidated groups. In particular, reg-
ulations are needed to address three is-
sues related to consolidated groups that
were not expressly addressed in the TCJA
or the CARES Act. First, the proposed
regulations describe how to determine
the 80-percent limitation in the case of a
“mixed” group – that is, a consolidated
group containing nonlife insurance com-
panies and other members. Second, the
proposed regulations address the calcu-
lation and allocation of farming losses.
Third, the proposed regulations imple-
ment the 80-percent limitation into exist-
ing regulations to determine the CNOL
deduction attributable to losses a mem-
ber arising during periods in which that
member was not part of that group. Part
I.B of this Special Analyses describes the

July 20, 2020 206 Bulletin No. 2020–30
manner by which the proposed regulations
addresses each of these issues.
Part I.B also describes an alternative
approach that was contemplated by the
Treasury Department and the IRS regard-
ing the allocation of currently generated
losses to nonlife insurance companies and
other members. The Treasury Department
and the IRS elected not to implement this
approach.
B. Overview of the Proposed Regulations
In this part I.B the following terms are
used. The term “P group” means a consol-
idated group of which P is the common
parent. The term “P&C member” means a
member of the P group that is a nonlife in-
surance company. The term “C member”
means a member of the P group that is a
corporation other than nonlife insurance
company.
1. Application of 80-percent limitation in
mixed groups
Under the statute, the general rule for
determining the NOL deduction (for a
taxable year beginning after December
31, 2020) effectively proceeds in two
steps. First, the taxpayer deducts pre-2018
NOLs without limit. Second, the taxpayer
deducts post-2017 NOLs up to 80 percent
of the taxpayer’s taxable income (comput-
ed without regard to the deductions under
sections 172, 199A, and 250) determined
after the deduction of pre-2018 NOLs
(but, naturally, before the deduction for
post-2017 NOLs). However, this 80-per-
cent limitation does not apply for corpo-
rations that are nonlife insurance compa-
nies.
The application of the 80-percent lim-
itation to the P group is straightforward
if (i) there are no pre-2018 NOLs and
(ii) both classes of P&C members and C
members have positive income before the
CNOL deduction. In that case, these pro-
posed regulations provide, quite naturally,
that the CNOL limitation is determined by
adding (i) the pre-CNOL income generat-
ed by the class of C members (C member
income pool), determined by applying the
80-percent limitation, plus (ii) 100 percent
of the pre-CNOL income generated by the
class of P&C members (P&C member in-
come pool). This latter treatment reflects
the rule in section 172(f) that nonlife in-
surance companies are not subject to the
80-percent limitation.
One complication arises when the pre-
CNOL C member income pool is positive
and the pre-CNOL P&C income pool is
negative, and the P group has positive
combined pre-CNOL taxable income. In
this case (where the pre-CNOL income
is generated by C members, rather than
P&C members), these proposed regula-
tions provide that the post-2017 CNOL
deduction limit is determined by applying
the 80-percent limitation to the income of
the P group. If the situation were reversed,
such that the P group had positive com-
bined taxable income but the pre-CNOL
income is generated by P&C members,
rather than the C members, the post-2017
CNOL deduction limit is equal to the in-
come of the P group (that is, determined
without regard to the 80-percent limita-
tion). In essence, in these situations, the
amount of the P group’s income able to
absorb a post-2017 CNOL carryover is
defined by the member pool (that is, the
C member income pool or the P&C mem-
ber income pool) that is generating the
income.
The other complication occurs when
there is a pre-2018 NOL. In this situa-
tion, it matters whether the pre-2018 NOL
is treated as reducing the amount of the
C member income pool or reducing the
amount of P&C member income pool.
Consider the following example (Example
1). In Example 1, the P group carries $50
in pre-2018 NOLs and $1000 in post-2017
NOLs to 2021. In 2021, the P&C mem-
bers and the C members, respectively,
earn (pre-CNOL) income of $100. If the
pre-2018 NOL were treated as solely re-
ducing the amount of C member income
pool, then the limitation for the post-2017
CNOL deduction would be $100 plus 80
percent of $50 ($100 minus $50), equal to
$140. If the pre-2018 NOL were treated
as solely reducing the amount of the P&C
member income pool, then the post-2017
CNOL deduction limit for the P group
would be $50 ($100 minus $50) plus 80
percent of $100, or $130.
These proposed regulations allocate
the pre-2018 NOL pro-rata to the C mem-
ber income pool and the P&C member
income pool in proportion to their cur-
rent-year income. In Example 1, $25 of
the pre-2018 NOL would be allocated to
the C member income pool and $25 to the
P&C member income pool. Therefore, the
post-2017 CNOL deduction limit for the
P group would be $75 ($100 minus $25)
plus 80 percent of $75 ($100 minus $25),
or $135.
2. Farming losses
Section 172 provides NOLs arising in
a taxable year beginning after December
31, 2020, may not be carried back to pri-
or years, with two exceptions: (1) farming
losses and (2) nonlife insurance compa-
ny losses. Section 172(b)(1)(B) defines a
“farming loss” as the smaller of the actu-
al loss from farming activities in a given
year (that is, the excess of the deductions
in farming activities over income in farm-
ing activities) and the total NOL generat-
ed in that year. This statutory provision
means that if a taxpayer incurs a loss in
farming activities but has overall income
in other activities, the farming loss will be
smaller than the loss in farming activities
(and can possibly be zero).
Regulations were needed to clarify two
issues that arise in the context of consoli-
dated groups. First, these regulations clar-
ify that the maximum amount of farming
loss is the CNOL of the group rather than
the NOL of the specific member generat-
ing the loss in farming activities. This ap-
proach closely follows regulations issued
by the Treasury Department and the IRS
in 2012 in an analogous setting.
Second, given the overlapping catego-
ries of carryback-eligible NOLs (farming
losses and nonlife insurance companies),
regulations are needed to allocate the
farming loss to the various members to de-
termine the total amount of CNOL that can
be carried back. Consider the following
example (Example 2). In Example 2, the P
group consists of one C member and one
P&C member. In 2021, the C member’s
only activity is farming and the C mem-
ber incurs a loss of $30, while the P&C
member incurs a loss of $10. The total
farming loss is $30, since $30 is less than
the P group CNOL of $40. If this farming
loss were allocated entirely to the C mem-
ber, then the total amount eligible for car-
ryback would be $40 (that is, $30 for the
farming loss and $10 for the loss incurred
by the P&C member). By contrast, if the

Bulletin No. 2020–30 207 July 20, 2020
farming loss were allocated entirely to the
P&C member, only $30 would be eligible
to be carried back.
Again, following a similar rule as the
2012 regulations, these proposed regu-
lations allocate the farming loss to each
member of the group in proportion with
their share of total losses, without regard
to whether each member actually engaged
in farming. In Example 2, this would al-
locate $7.50 (that is, one-fourth of $30)
of the farming loss to the P&C member
and the remaining $22.50 (that is, three-
fourths of $30) to the C member. There-
fore, the P group would be allowed to
carry back $32.50 total (that is, the $10 of
loss generated by the P&C member and
the $22.50 of farming losses allocated to
the C member).
3. Separate Return Loss Year Limitation
To reduce “loss trafficking,” existing
regulations under section 1502 limit the
extent to which a consolidated group (that
is, the P group) can claim a CNOL attrib-
utable to losses generated by some mem-
ber (M) in years in which M was not a
member. In particular, existing rules limit
this amount of loss to the amount of the
loss that would have been deductible had
M remained a separate entity; that is, the
rules are designed to preserve neutrality in
loss use between being a separate entity
or a member of a group. Existing rules
operationalize this principle using the
mechanic of a “cumulative register.” The
cumulative register is equal to the (cumu-
lative) amount of M’s income that is taken
into account in the P group’s income. In-
come earned by M while a member of the
P group increases the cumulative register,
while losses (carried over or otherwise)
taken into account by the group reduce
the cumulative register. In general, the
existing rules provide that M’s pre-group
NOLs cannot offset the P group’s income
when the cumulative register is less than
or equal to zero.
The introduction of the 80-percent lim-
itation in the TCJA and CARES Act neces-
sitates an adjustment to this mechanism in
order to retain this neutrality-in-loss-use
property. In particular, these proposed reg-
ulations provide that any losses by M that
are absorbed by the P group and subject
to the 80-percent limitation cause a reduc-
tion to the register equal to the full amount
of income needed to support that deduc-
tion. The following example (Example
3) demonstrates why this adjustment is
necessary. In Example 3, P and S are each
corporations other than nonlife insurance
companies (that is, they are subject to the
80-percent limitation). Suppose in 2021, S
incurs a loss of $800, which is the only
loss incurred by S. In 2022, S incurs in-
come of $400. If S were not a member of a
consolidated group, its 2022 NOL deduc-
tion would be limited to $320 (80 percent
of $400). Suppose instead that P acquires
S in 2022 and that P has separate income
of $600 in 2022, so the consolidated group
has $1000 in pre-CNOL income in 2022.
Before claiming any CNOLs, S’s cumu-
lative register would increase to $400 in
2022. Without any additional rules, the
$400 cumulative register would allow P to
claim a CNOL of $400 (bringing the regis-
ter down to zero), greater than what would
have been allowed had S remained a sepa-
rate entity. By contrast, requiring the reg-
ister to be reduced by 125 percent of the
NOL (as under the current NPRM) allows
P to claim only a $320 CNOL, replicating
the result if S were a separate entity.
4. Allocation of current losses to nonlife
insurance companies
In general, under the TCJA and CARES
Act, taxpayers may not carry back any
losses generated in tax years beginning
after 2020, with the exception of losses
generated by nonlife insurance companies
and farming losses. Existing regulations
clarify that CNOLs are allocated to each
member in proportion to the total loss.
This allocation rule can be illustrated by
example (Example 4). In Example 4, the
C member has a current loss of $10 (in a
tax year beginning in 2021 or later). The
P&C members are corporations PC1 and
PC2. PC1 has a gain of $40 and PC2 has a
loss of $40. Assume that the P group does
not engage in any farming activities. The
CNOL for the P group is $10. The $10 of
CNOL is allocated to the C member and
PC2 in proportion to their total losses.
The C member has one-fifth of the total
loss ($10 divided by $50) and PC2 has
four-fifths. Therefore, under the existing
regulations, the C member is allocated $2
($10 times one-fifth) and PC2 is allocated
$8 ($10 times four-fifths). In the end, $8
of the CNOL may be carried back in Ex-
ample 4. The proposed regulations do not
alter these existing regulations.
In formulating these proposed reg-
ulations, the Treasury Department and
the IRS contemplated an alternative ap-
proach. Under this alternative, consolidat-
ed groups would be required to compute
gain and loss by grouping P&C members
and C members separately prior to allo-
cating CNOL to members. The applica-
tion of this approach can be seen by re-
visiting Example 4. Under this alternative
approach, because the P&C members as
a whole do not have a loss, no CNOL
would be allocated to any P&C member
regardless of the gain or loss of any of the
individual P&C members. Thus, under
the alternative approach, none of the $10
CNOL would be eligible for carryback in
Example 4.
C. Economic Analysis
1. Baseline
In this analysis, the Treasury Depart-
ment and the IRS assess the benefits and
costs of the proposed regulations relative
to a no-action baseline reflecting antici-
pated Federal income tax-related behavior
in the absence of these regulations.
2. Summary of economic effects
The proposed regulations provide cer-
tainty and clarity to taxpayers regarding
the treatment of NOLs under section 172
and the regulations under section 1502. In
the absence of such guidance, the chance
that different taxpayers would interpret
the statute and the regulations differently
would be exacerbated. Similarly situated
taxpayers might interpret those rules dif-
ferently, with one taxpayer pursuing an
economic opportunity that another tax-
payer might decline to make because of
different interpretations of the ability of
losses to offset taxable income. If this sec-
ond taxpayer’s activity were more profit-
able, the resulting economic decisions are
inefficient. Such situations are more likely
to arise in the absence of guidance. While
no guidance can curtail all differential or
inaccurate interpretations of the statute,
the regulations significantly mitigate the

July 20, 2020 208 Bulletin No. 2020–30
chance for differential or inaccurate inter-
pretations and thereby increase economic
efficiency.
To the extent that the specific provi-
sions of the proposed regulations result in
the acceleration or delay of the tax year in
which taxpayers deduct an NOL relative
to the baseline, those taxpayers may face a
change in the present value of the after-tax
return to new investment, particularly in-
vestment that may result in losses. The
resulting changes in the incentives facing
the taxpayer are complex and may lead
the taxpayer either to increase, decrease,
or leave unchanged the volume and risk
level of its investment portfolio, relative
to the baseline, in ways that depend on the
taxpayer’s stock of NOLs and the depreci-
ation schedules and income patterns of in-
vestments they would typically consider,
including whether the investment is sub-
ject to bonus depreciation. Because these
elements are complex and taxpayer-spe-
cific and because the sign of the effect on
investment is generally ambiguous, the
Treasury Department and the IRS have
not projected the specific effects on eco-
nomic activity arising from the proposed
regulations.
The Treasury Department and the IRS
project that any such effects will be small
relative to the baseline. The effects are
small because the regulations apply only
to consolidated groups; in addition, sever-
al provisions of the proposed regulations
apply only to the extent that a consolidat-
ed group contains a mix of member types.
Moreover, the effects are small because:
(i) for provisions of the proposed regu-
lations that affect the deduction for pre-
2018 NOLs, the effects are limited to the
stock of the pre-2018 NOLs; and (ii) for
provisions that affect the allowable rate of
loss usage of post-2017 NOLs, the effect
arises only from the 20 percentage point
differential in the deduction for these
NOLs. This latter effect in particular, to
which the bulk of the provisions apply, is
too small to substantially affect taxpayers’
use of NOLs and thus too small to lead
to meaningful changes in economic deci-
sions.
The Treasury Department and the IRS
have not provided quantitative estimates
of the effects of these regulations relative
to the baseline because they do not have
readily available models that predict the
effects of these tax treatments of consol-
idated group NOLs on the investments or
other activities that consolidated groups
might undertake. The Treasury Depart-
ment and the IRS solicit comments on
this analysis and on the economic effects
of these proposed regulations, and partic-
ularly solicit data, models, or other ev-
idence that could enhance the rigor with
which the final regulations are developed.
3. Allocation of CNOLs to specific
members of consolidated groups
The proposed regulations do not amend
existing rules for the allocation of the
CNOL within consolidated groups. The
proposed regulations follow existing rules
and allocate the CNOLs to each member
of the group in proportion to the total loss.
The Treasury Department and the IRS
considered an alternative approach that
would have required groups to compute
gain and loss at the subgroup level prior to
allocating CNOL to members. Recall Ex-
ample 4 in which the PC subgroup had no
gain or loss but the C subgroup had a loss
of $10. Under this alternative approach,
because the PC subgroup as a whole does
not have a loss, no CNOL would be allo-
cated to any member in the PC group re-
gardless of the gain or loss of any of the
individual members of PC. Thus, in Ex-
ample 4, none of the $10 CNOL would be
eligible for carryback.
The Treasury Department and the IRS
recognize that as a result of the TCJA and
the CARES Act the adopted approach of
allocating losses to each member may
provide groups with a potential incentive,
relative to the alternative approach, to split
their C members into several corporations
– some with loss and some with gain. In
certain circumstances, such a strategy
would effectively enable some share of
the losses generated by the other C mem-
bers to be carried back. This change in the
business structure of consolidated groups
may entail economic costs because, to the
extent this strategy is pursued, it would
result from tax-driven rather than mar-
ket-driven considerations. The Treasury
Department and the IRS project, however,
that the adopted approach will have lower
compliance costs for taxpayers, relative to
the alternative approach, because it gen-
erally follows existing regulatory practice
for allocating losses within a consolidated
group.
The Treasury Department and the IRS
have not attempted to estimate the eco-
nomic consequences of either of these
effects but project them to be small. The
effects are projected to be small because
(i) only a small number of taxpayers are
likely to be affected; (ii) any reorganiza-
tion that occurs due to the proposed reg-
ulations will primarily be “on paper” and
entail little or no economic loss; and (iii)
the compliance burden of loss allocation,
under either the proposed regulations or
the alternative approach, is not high.
4. Affected Taxpayers
The Treasury Department and the IRS
project that these regulations will primar-
ily affect consolidated groups that contain
at least one nonlife insurance member and
at least one member that is not a nonlife
insurance company. Based on data from
2015, the Treasury Department and the
IRS calculate that there were 1,130 such
consolidated groups. Approximately 460
of these groups were of “mixed loss” sta-
tus, meaning that at least one nonlife in-
surance member had a gain and one other
member had a loss, or vice versa.
II. Paperwork Reduction Act
For information regarding the collec-
tion of information in §1.1502-21(b)(3)
(ii)(C) of these proposed regulations (in-
cluding where to submit comments on
this collection of information and on the
accuracy of the estimated burden), please
refer to the preamble to the temporary
regulations under section 1502 published
elsewhere in this issue of the Federal
Register. This collection of information
will be under Office of Management and
Budget control number 1545-0123, the
same control number as the collection
of information in those temporary regu-
lations, and the estimated burden of this
collection of information is described in
the preamble to those temporary regula-
tions.
III. Regulatory Flexibility Act
Pursuant to the Regulatory Flexibili-
ty Act (5 U.S.C. chapter 6), it is hereby

Bulletin No. 2020–30 209 July 20, 2020
certified that these proposed regula-
tions would not have a significant eco-
nomic impact on a substantial number
of small entities. This certification is
based on the fact that these proposed
regulations apply only to corporations
that file consolidated Federal income
tax returns, and that such corporations
almost exclusively consist of larger
businesses. Specifically, based on data
available to the IRS, corporations that
file consolidated Federal income tax
returns represent only approximate-
ly two percent of all filers of Forms
1120 (U.S. Corporation Income Tax
Return). However, these consolidated
Federal income tax returns account for
approximately 95 percent of the aggre-
gate amount of receipts provided on all
Forms 1120. Therefore, these proposed
regulations would not create additional
obligations for, or impose an economic
impact on, small entities. Accordingly,
the Secretary certifies that the proposed
regulations will not have a significant
economic impact on a substantial num-
ber of small entities.
Pursuant to section 7805(f) of the Inter-
nal Revenue Code, this notice of proposed
rulemaking has been submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment on
its impact on small business.
IV. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates
Reform Act of 1995 requires that agencies
assess anticipated costs and benefits and
take certain other actions before issuing a
final rule that includes any Federal man-
date that may result in expenditures in any
one year by a state, local, or tribal govern-
ment, in the aggregate, or by the private
sector, of $100 million in 1995 dollars,
updated annually for inflation. In 2020,
that threshold is approximately $156 mil-
lion. This rule does not include any Fed-
eral mandate that may result in expendi-
tures by state, local, or tribal governments,
or by the private sector in excess of that
threshold.
V. Executive Order 13132: Federalism
Executive Order 13132 (entitled
“Federalism”) prohibits an agency from
publishing any rule that has federalism
implications if the rule either imposes
substantial, direct compliance costs on
state and local governments, and is not
required by statute, or preempts state
law, unless the agency meets the con-
sultation and funding requirements of
section 6 of the Executive Order. This
proposed rule does not have federalism
implications, does not impose substantial
direct compliance costs on state and local
governments, and does not preempt state
law within the meaning of the Executive
Order.
Comments and Requests for a Public
Hearing
Before the proposed amendments to
the regulations are adopted as final reg-
ulations, consideration will be given to
comments that are submitted timely to
the IRS as prescribed in this preamble
under the “ADDRESSES” heading. The
Treasury Department and the IRS request
comments on all aspects of the proposed
regulations. Any electronic comments
submitted, and to the extent practicable
any paper comments submitted, will be
made available at www.regulations.gov or
upon request.
A public hearing will be scheduled if
requested in writing by any person who
timely submits electronic or written com-
ments. Requests for a public hearing are
also encouraged to be made electronically.
If a public hearing is scheduled, notice of
the date and time for the public hearing
will be published in the Federal Regis-
ter. Announcement 2020-4, 2020-17 IRB
1, provides that until further notice, pub-
lic hearings conducted by the IRS will be
held telephonically. Any telephonic hear-
ing will be made accessible to people with
disabilities.
Statement of Availability of IRS
Documents
IRS Revenue Procedures, Revenue
Rulings, and Notices cited in this pream-
ble are published in the Internal Revenue
Bulletin (or Cumulative Bulletin) and are
available from the Superintendent of Doc-
uments, U.S. Government Publishing Of-
fice, Washington, DC 20402, or by visit-
ing the IRS website at http://www.irs.gov.
Drafting Information
The principal authors of these proposed
regulations are Justin O. Kellar, Gregory
J. Galvin, and William W. Burhop of the
Office of Associate Chief Counsel (Cor-
porate). However, other personnel from
the Treasury Department and the IRS par-
ticipated in their development.
Partial Withdrawal of Notices of
Proposed Rulemaking
Accordingly, under the authority of
26 U.S.C. 1502 and 7805, §1.1502-21(b)
(2)(iv)(C) of the notice of proposed
rulemaking (REG-140668-07) pub-
lished in the Federal Register (77 FR
57451) on September 17, 2012 is with-
drawn, and §1.1502-21(b)(2)(iv)(B)
of the notice of proposed rulemaking
(REG-101652-10) published in the Fed-
eral Register (80 FR 33211) on June 11,
2015 is withdrawn.
List of Subjects in 26 CFR Part 1
Income Taxes, Reporting and record-
keeping requirements.
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is pro-
posed to be amended as follows:
PART 1—INCOME TAX
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.1502-1 is amended by
adding paragraphs (k) and (l) to read as
follows:
§1.1502-1 Definitions.
* * * * *
(k) Nonlife insurance company. The
term nonlife insurance company means a
member that is an insurance company oth-
er than a life insurance company, each as
defined in section 816(a).
(l) Applicability date. Paragraph (k)
of this section applies to taxable years
beginning after [EFFECTIVE DATE OF
FINAL RULE].
Par. 3. Section 1.1502-21 is amended
by:

July 20, 2020 210 Bulletin No. 2020–30
1. Revising paragraph (a).
2. Revising paragraph (b)(1).
3. In paragraph (b)(2)(iv)(A), removing
the language “shall equal the product of”
with the language “equals the product ob-
tained by multiplying”, and adding in its
place “such member” with the language
“the member”.
4. Revising paragraph (b)(2)(iv)(B).
5. Adding paragraphs (b)(2)(iv)(C)
through (E).
6. Revising paragraph (b)(2)(v) intro-
ductory text.
7. In paragraph (b)(2)(v), redesignating
Examples 1 through 3 as paragraphs (b)(2)
(v)(A) through (C), respectively.
8. In newly redesignated paragraphs (b)
(2)(v)(A) through (C), redesignating para-
graphs (b)(2)(v)(A)(i) and (ii) as paragraphs
(b)(2)(v)(A)(1) and (2), paragraphs (b)(2)(v)
(B)(i) and (ii) as paragraphs (b)(2)(v)(B)(1)
and (2), and paragraphs (b)(2)(v)(C)(i) and
(ii) as paragraphs (b)(2)(v)(C)(1) and (2).
9. Adding paragraphs (b)(2)(v)(D)
through (G).
10. In paragraph (b)(3)(ii)(B), remov-
ing the language Ҥ 1.1502-21(b)(3)(ii)
(B)(2)” and adding in its place “§1.1502-
21(b)(3)(ii)(B)”.
11. Revising paragraph (b)(3)(ii)(C).
12. Adding paragraph (b)(3)(ii)(D).
13. Revising paragraph (c)(1)(i) intro-
ductory text.
14. In paragraph (c)(1)(i)(C)(2), re-
moving the language “and”.
15. In paragraph (c)(1)(i)(D), removing
the language “account.” and adding in its
place “account; and”.
16. Adding paragraph (c)(1)(i)(E).
17. In paragraph (c)(1)(iii) introductory
text, adding a new first sentence.
18. In paragraph (c)(1)(iii), designating
Examples 1 through 5 as paragraphs (c)(1)
(iii)(A) through (E), respectively.
19. In newly redesignated paragraphs
(c)(1)(iii)(A) through (E), redesignating
paragraphs (c)(1)(iii)(A)(i) through (iii) as
paragraphs (c)(1)(iii)(A)(1) through (3),
paragraphs (c)(1)(iii)(B)(i) through (vi) as
paragraphs (c)(1)(iii)(B)(1) through (6),
paragraphs (c)(1)(iii)(C)(i) through (iii) as
paragraphs (c)(1)(iii)(C)(1) through (3),
paragraphs (c)(1)(iii)(D)(i) through (iv) as
paragraphs (c)(1)(iii)(D)(1) through (4),
and paragraphs (c)(1)(iii)(E)(i) through (v)
as paragraphs (c)(1)(iii)(E)(1) through (5).
20. In newly redesignated paragraph
(c)(1)(iii)(C)(2), adding the language “,
a taxable year that begins on January 1,
2021” after the language “at the beginning
of Year 4”.
21. Revising paragraphs (c)(1)(iii)(D)
(2) through (4).
22. Adding paragraph (c)(1)(iii)(D)(5).
23. Revising paragraphs (c)(1)(iii)(E)
(2) through (5).
24. Adding paragraphs (c)(1)(iii)(E)(6)
and (c)(1)(iii)(F).
25. Revising paragraph (c)(2)(v).
26. In paragraph (c)(2)(viii) introducto-
ry text, adding a new first sentence.
27. In paragraph (c)(2)(viii), redesig-
nating Examples 1 through 4 as paragraphs
(c)(2)(viii)(A) through (D), respectively.
28. In newly redesignated paragraphs
(c)(2)(viii)(A) through (D), redesignat-
ing paragraphs (c)(2)(viii)(A)(i) through
(vii) as paragraphs (c)(2)(viii)(A)(1)
through (7), paragraphs (c)(2)(viii)(B)(i)
through (iv) as paragraphs (c)(2)(viii)(B)
(1) through (4), paragraphs (c)(2)(viii)(C)
(i) through (iii) as paragraphs (c)(2)(viii)
(C)(1) through (3), and paragraphs (c)(2)
(viii)(D)(i) and (ii) as paragraphs (c)(2)
(viii)(D)(1) and (2).
29. In newly redesignated paragraphs
(c)(2)(viii)(A)(3) through (7), the first
sentence of each, adding the language “,
including the limitation under paragraph
(c)(1)(i)(E) of this section” after the lan-
guage “under paragraph (c) of this sec-
tion”.
30. In newly redesignated paragraph
(c)(2)(viii)(B)(1), the first sentence, add-
ing the language “, none of which is a
nonlife insurance company” after the lan-
guage “S, T, P and M”.
31. In newly redesignated paragraph
(c)(2)(viii)(B)(1), the fourth sentence,
adding the language “(a taxable year be-
ginning after December 31, 2020)” after
the language “Year 3”.
32. Revising newly designated para-
graph (c)(2)(viii)(B)(3).
33. Redesignating newly redesignated
paragraph (c)(2)(viii)(B)(4) as paragraph
(c)(2)(viii)(B)(5).
34. Adding a new paragraph (c)(2)(viii)
(B)(4).
35. Revising newly redesignated para-
graph (c)(2)(viii)(B)(5).
36. Adding paragraph (c)(2)(viii)(B)
(6).
37. In paragraph (g)(5), redesignating
Examples 1 through 9 as paragraphs (g)(5)
(i) through (ix), respectively.
38. In newly redesignated paragraphs
(g)(5)(i) through (ix), redesignating para-
graphs (g)(5)(i)(i) through (iv) as para-
graphs (g)(5)(i)(A) through (D),
paragraphs (g)(5)(ii)(i) through (iv) as
paragraphs (g)(5)(ii)(A) through (D),
paragraphs (g)(5)(iii)(i) through (iii) as
paragraphs (g)(5)(iii)(A) through (C),
paragraphs (g)(5)(iv)(i) through (iv) as
paragraphs (g)(5)(iv)(A) through (D),
paragraphs (g)(5)(v)(i) through (iv) as
paragraphs (g)(5)(v)(A) through (D),
paragraphs (g)(5)(vi)(i) through (iv) as
paragraphs (g)(5)(vi)(A) through (D),
paragraphs (g)(5)(vii)(i) through (vi) as
paragraphs (g)(5)(vii)(A) through (F),
paragraphs (g)(5)(viii)(i) through (v) as
paragraphs (g)(5)(viii)(A) through (E),
and paragraphs (g)(5)(ix)(i) through (vii)
as paragraphs (g)(5)(ix)(A) through (G).
39. Revising paragraph (h)(9).
40. Adding paragraph (h)(10).
The revisions and additions read as fol-
lows:
§1.1502-21 Net operating losses.
(a) Consolidated net operating loss
deduction—(1) In general. Subject to
any limitations under the Internal Rev-
enue Code or this chapter (for example,
the limitations under section 172(a)(2)
and paragraph (a)(2) of this section), the
consolidated net operating loss deduction
(or CNOL deduction) for any consolidated
return year is the aggregate of the net op-
erating loss carryovers and carrybacks to
the year. The net operating loss carryovers
and carrybacks consist of—
(i) Any CNOLs (as defined in para-
graph (e) of this section) of the consoli-
dated group; and
(ii) Any net operating losses (or NOLs)
of the members arising in separate return
years.
(2) Application of section 172 for com-
puting net operating loss deductions—(i)
Overview. For purposes of §1.1502-11(a)
(2) (regarding a CNOL deduction), the
rules of section 172 regarding the use of
net operating losses are taken into account
as provided by this paragraph (a)(2) in cal-
culating the consolidated taxable income
of a group for a particular consolidated re-
turn year. More specifically, the aggregate
amount of net operating losses arising in

Bulletin No. 2020–30 211 July 20, 2020
taxable years beginning before January 1,
2018 (pre-2018 NOLs) carried to a particu-
lar consolidated return year beginning after
December 31, 2020, is added to the group’s
post-2017 CNOL deduction limit (as deter-
mined under this paragraph (a)(2)) for such
year for purposes of determining the total
CNOL deduction allowed for such year.
See section 172(a)(2)(A) and (B).
(ii) Computation of the 80-percent
limitation and special rule for nonlife in-
surance companies—(A) Determinations
based on status of group members. If a
portion of a CNOL arising in a taxable
year beginning after December 31, 2017
(post-2017 CNOL), is carried back or car-
ried over to a consolidated return year be-
ginning after December 31, 2020, whether
the members of the group include nonlife
insurance companies, other types of cor-
porations, or both determines whether
section 172(a) (including the limitation
described in section 172(a)(2)(B) (80-per-
cent limitation)), section 172(f), or both,
apply to the group for the consolidated
return year.
(B) Determination of post-2017 CNOL
deduction limit. The amount of post-2017
CNOLs that may be absorbed by one or
more members of the group in a consoli-
dated return year beginning after Decem-
ber 31, 2020 (post-2017 CNOL deduction
limit) is determined under paragraph (a)
(2)(iii) of this section by applying section
172(a)(2)(B) (that is, the 80-percent lim-
itation), section 172(f) (that is, the special
rule for nonlife insurance companies), or
both, to the group’s consolidated taxable
income for that year.
(C) Inapplicability of 80-percent lim-
itation. The 80-percent limitation does
not apply to CNOL deductions taken in
taxable years beginning before January
1, 2021, or to CNOLs arising in taxable
years beginning before January 1, 2018
(that is, pre-2018 CNOLs). See section
172(a).
(iii) Computations under sections
172(a)(2)(B) and 172(f). This paragraph
(a)(2)(iii) provides rules for applying
sections 172(f) and 172(a)(2)(B) to con-
solidated return years beginning after De-
cember 31, 2020 (that is, for computing
the post-2017 CNOL deduction limit).
Section 172(f) applies to income of non-
life insurance company members, where-
as section 172(a)(2)(B) applies to income
of members that are not nonlife insurance
companies. Thus, this paragraph (a)(2)(iii)
provides specific rules for groups with no
nonlife insurance company members, only
nonlife insurance company members, or a
combination of nonlife insurance compa-
ny members and other members.
(A) Groups without nonlife insurance
company members. If no member of a
group is a nonlife insurance company
during a particular consolidated return
year beginning after December 31, 2020,
section 172(a)(2)(B) (that is, the 80-per-
cent limitation) applies to all income of
the group for that year. Therefore, the
post-2017 CNOL deduction limit for the
group for that year is the lesser of—
(1) The aggregate amount of post-2017
NOLs carried to that year; or
(2) The amount determined by multi-
plying—
(i) 80 percent, by
(ii) Consolidated taxable income for
the group for that year (determined with-
out regard to any deductions under sec-
tions 172, 199A, and 250) less the aggre-
gate amount of pre-2018 NOLs carried to
that year.
(B) Groups comprised solely of non-
life insurance companies. If a group is
comprised solely of nonlife insurance
companies during a particular consol-
idated return year beginning after De-
cember 31, 2020, section 172(f) applies
to all income of the group for that year.
Therefore, the post-2017 CNOL de-
duction limit for the group for that year
equals consolidated taxable income less
the aggregate amount of pre-2018 NOLs
carried to that year.
(C) Groups that include both nonlife
insurance companies and other corpora-
tions—(1) General rule. Except as pro-
vided in paragraph (a)(2)(iii)(C)(5) of this
section, if a group has at least one member
that is a nonlife insurance company and
at least one member that is not a nonlife
insurance company during a particular
consolidated return year beginning after
December 31, 2020, the post-2017 CNOL
deduction limit for the group for that year
equals the sum of the amounts determined
under paragraphs (a)(2)(iii)(C)(2) and (3)
of this section.
(2) Residual income pool. The amount
determined under this paragraph (a)(2)(iii)
(C)(2) is the lesser of—
(i) The aggregate amount of post-2017
NOLs carried to a consolidated return year
beginning after December 31, 2020, or
(ii) Eighty percent of the consolidated
taxable income of the group for that year
(determined without regard to any income,
gain, deduction, or loss of members that
are nonlife insurance companies and with-
out regard to any deductions under sections
172, 199A, and 250) (residual income pool)
after subtracting the aggregate amount of
pre-2018 NOLs carried to that year that are
allocated to the residual income pool under
paragraph (a)(2)(iii)(C)(4) of this section
(that is, by applying the 80-percent limita-
tion). See section 172(a)(2)(B).
(3) Nonlife income pool. The amount
determined under this paragraph (a)(2)(iii)
(C)(3) is the consolidated taxable income
of the group for a consolidated return year
beginning after December 31, 2020 (deter-
mined without regard to any income, gain,
deduction, or loss of members included in
the computation under paragraph (a)(2)
(iii)(C)(2) of this section) (nonlife income
pool) less the aggregate amount of pre-
2018 NOLs carried to that year that are
allocated to the nonlife income pool under
paragraph (a)(2)(iii)(C)(4) of this section.
See section 172(f).
(4) Pro rata allocation of pre-2018
NOLs between pools of income. For pur-
poses of paragraphs (a)(2)(iii)(C)(2) and
(3) of this section, the aggregate amount
of pre-2018 NOLs carried to any partic-
ular consolidated return year beginning
after December 31, 2020, is prorated be-
tween the residual income pool and the
nonlife income pool based on the relative
amounts of positive income of those two
pools. For example, if $30 of pre-2018
NOLs is carried over to a year in which the
residual income pool contains $75 and the
nonlife income pool contains $150, the re-
sidual income pool is allocated $10 of the
pre-2018 NOLs ($30 x $75/($75 + $150),
or $30 x 1/3), and the nonlife income pool
is allocated the remaining $20 of pre-2018
NOLs ($30 x $150/($75+$150), or $30 x
2/3).
(5) Exception. The post-2017 CNOL
deduction limit for the group for a consol-
idated return year is determined under this
paragraph (a)(2)(iii)(C)(5) if the amounts
computed under paragraphs (a)(2)(iii)(C)
(2) and (3) of this section for that year are
not both positive.

July 20, 2020 212 Bulletin No. 2020–30
(i) Positive residual income pool and
negative nonlife income pool. This para-
graph (a)(2)(iii)(C)(5)(i) applies if the
amount computed under paragraph (a)(2)
(iii)(C)(2) of this section for the residual
income pool is positive and the amount
computed under paragraph (a)(2)(iii)(C)
(3) of this section for the nonlife income
pool is negative. If this paragraph (a)(2)
(iii)(C)(5)(i) applies, the post-2017 CNOL
deduction limit for the group for a con-
solidated return year equals the lesser of
the aggregate amount of post-2017 NOLs
carried to that year, or 80 percent of the
consolidated taxable income of the en-
tire group (determined without regard to
any deductions under sections 172, 199A,
and 250) after subtracting the aggregate
amount of pre-2018 NOLs carried to that
year (that is, by applying the 80-percent
limitation). See section 172(a)(2)(B).
(ii) Positive nonlife income pool and
negative residual income pool. If the
amount computed under paragraph (a)(2)
(iii)(C)(3) of this section for the nonlife
income pool is positive and the amount
computed under paragraph (a)(2)(iii)(C)
(2) of this section for the residual income
pool is negative, the post-2017 CNOL de-
duction limit for the group for a consoli-
dated return year equals the consolidated
taxable income of the entire group less the
aggregate amount of pre-2018 NOLs car-
ried to that year. See section 172(f).
(b) * * *
(1) Carryovers and carrybacks gener-
ally. The net operating loss carryovers and
carrybacks to a taxable year are determined
under the principles of, and are subject to
any limitations under, section 172 and this
section. Thus, losses permitted to be ab-
sorbed in a consolidated return year gener-
ally are absorbed in the order of the taxable
years in which they arose, and losses carried
from taxable years ending on the same date,
and which are available to offset consoli-
dated taxable income for the year, generally
are absorbed on a pro rata basis. In addition,
except as otherwise provided in this sec-
tion, the amount of any CNOL absorbed by
the group in any year is apportioned among
members based on the percentage of the
CNOL eligible for carryback or carryover
that is attributable to each member as of the
beginning of the year. The percentage of the
CNOL attributable to a member is deter-
mined pursuant to paragraph (b)(2)(iv)(B)
of this section. Additional rules provided
under the Internal Revenue Code or regu-
lations also apply. See, for example, section
382(l)(2)(B) (if losses are carried from the
same taxable year, losses subject to limita-
tion under section 382 are absorbed before
losses that are not subject to limitation un-
der section 382). See paragraph (c)(1)(iii)
of this section, Example 2, for an illustra-
tion of pro rata absorption of losses subject
to a SRLY limitation.
(2) * * *
(iv) * * *
(B) Percentage of CNOL attributable
to a member—(1) In general. Except as
provided in paragraph (b)(2)(iv)(B)(2) of
this section, the percentage of the CNOL
for the consolidated return year attributable
to a member equals the separate net oper-
ating loss of the member for the consoli-
dated return year divided by the sum of the
separate net operating losses for that year
of all members having such losses for that
year. For this purpose, the separate net op-
erating loss of a member is determined by
computing the CNOL by reference to only
the member’s items of income, gain, de-
duction, and loss, including the member’s
losses and deductions actually absorbed by
the group in the consolidated return year
(whether or not absorbed by the member).
(2) Recomputed percentage. If, for any
reason, a member’s portion of a CNOL
is absorbed or reduced on a non-pro rata
basis (for example, under §1.1502-11(b)
or (c), paragraph (b)(2)(iv)(C) of this
section, §1.1502-28, or §1.1502-36(d),
or as the result of a carryback to a sep-
arate return year), the percentage of the
CNOL attributable to each member is re-
computed. In addition, if a member with
a separate net operating loss ceases to be
a member, the percentage of the CNOL
attributable to each remaining member is
recomputed. The recomputed percentage
of the CNOL attributable to each mem-
ber equals the remaining CNOL attrib-
utable to the member at the time of the
recomputation divided by the sum of
the remaining CNOL attributable to all
of the remaining members at the time of
the recomputation. For purposes of this
paragraph (b)(2)(iv)(B)(2), a CNOL that
is permanently disallowed or eliminated
is treated as absorbed.
(C) Net operating loss carryovers and
carrybacks—(1) General rules. Subject to
the rules regarding allocation of special
status losses under paragraph (b)(2)(iv)
(D) of this section—
(i) Nonlife insurance companies. The
portion of a CNOL attributable to any
members of the group that are nonlife in-
surance companies is carried back or car-
ried over under the rules in section 172(b)
applicable to nonlife insurance companies.
(ii) Corporations other than nonlife
insurance companies. The portion of a
CNOL attributable to any other members
of the group is carried back or carried over
under the rules in section 172(b) applica-
ble to corporations other than nonlife in-
surance companies.
(2) Recomputed percentage. For rules
governing the recomputation of the per-
centage of a CNOL attributable to each
remaining member if any portion of the
CNOL attributable to a member is carried
back under section 172(b)(1)(B) or (C)
and absorbed on a non-pro rata basis, see
paragraph (b)(2)(iv)(B)(2) of this section.
(D) Allocation of special status losses.
The amount of the group’s CNOL that is
determined to constitute a farming loss (as
defined in section 172(b)(1)(B)) or any
other net operating loss that is subject to
special carryback or carryover rules (spe-
cial status loss) is allocated to each member
separately from the remainder of the CNOL
based on the percentage of the CNOL at-
tributable to the member, as determined un-
der paragraph (b)(2)(iv)(B) of this section.
This allocation is made without regard to
whether a particular member actually in-
curred specific expenses or engaged in spe-
cific activities required by the special status
loss provisions. This paragraph (b)(2)(iv)
(D) applies only with regard to losses for
which the special carryback or carryover
rules are dependent on the type of expense
generating the loss, rather than on the spe-
cial status of the entity to which the loss
is allocable. See section 172(b)(1)(C) and
paragraph (b)(2)(iv)(C)(1)(i) of this section
(applicable to losses of nonlife insurance
companies). This paragraph (b)(2)(iv)(D)
does not apply to farming losses incurred
by a consolidated group in any taxable year
beginning after December 31, 2017, and
before January 1, 2021.
(E) Coordination with rules for
life-nonlife groups under §1.1502-47. For
groups that include at least one member
that is a life insurance company and for

Bulletin No. 2020–30 213 July 20, 2020
which an election is in effect under section
1504(c)(2), see §1.1502-47.
(v) Examples. For purposes of the ex-
amples in this paragraph (b)(2)(v), unless
otherwise stated, all groups file consolidat-
ed returns, all corporations have calendar
taxable years, all losses are farming losses
within the meaning of section 172(b)(1)
(B)(ii), all taxable years begin after De-
cember 31, 2020, the facts set forth the
only corporate activity, value means fair
market value and the adjusted basis of
each asset equals its value, all transactions
are with unrelated persons, and the appli-
cation of any limitation or threshold under
section 382 is disregarded. The principles
of this paragraph (b) are illustrated by the
following examples:
* * * * *
(D) Example 4: Allocation of a CNOL arising
in a consolidated return year beginning after De-
cember 31, 2020. (1) P is the common parent of a
consolidated group that includes S. Neither P nor S
is a nonlife insurance company. The P group also in-
cludes nonlife insurance companies PC1, PC2, and
PC3. In the P group’s 2021 consolidated return year,
all members except S have separate net operating
losses, and the P group’s CNOL in that year is $40.
No member of the P group engages in farming activ-
ities. See section 172(b)(1)(B)(ii).
(2) Under paragraphs (b)(1) and (b)(2)(iv)(B)
(1) of this section, for purposes of carrying losses to
other taxable years, the P group’s $40 CNOL is allo-
cated pro rata among the group members that have
separate net operating losses. Under paragraph (b)(2)
(iv)(C) of this section, those respective portions of
the CNOL attributable to PC1, PC2, and PC3 (that
is, members that are nonlife insurance companies)
are carried back to each of the two preceding taxable
years and then carried over to each of the 20 subse-
quent taxable years. See section 172(b)(1)(C). The
portion attributable to P (which is not a nonlife insur-
ance company) may not be carried back but is carried
over to future years. See section 172(b)(1)(A).
(E) Example 5: Allocation of a CNOL arising in
a consolidated return year beginning before January
1, 2021. The facts are the same as in paragraph (b)(2)
(v)(D)(1) of this section, except that the P group in-
curred the CNOL during the P group’s 2020 consol-
idated return year. The allocation among the P group
members of the CNOL described in paragraph (b)(2)
(v)(D)(2) of this section would be the same. Howev-
er, those respective portions of the CNOL attribut-
able to PC1, PC2, and PC3 (that is, members that are
nonlife insurance companies) will be carried back to
each of the five preceding taxable years and then car-
ried over to each of the 20 subsequent taxable years.
See section 172(b)(1)(C) and section 172(b)(1)(D)
(i). The portion attributable to P (which is not a non-
life insurance company) will be carried back to each
of the five preceding taxable years and then carried
over to future years. See section 172(b)(1)(A) and
section 172(b)(1)(D)(i).
(F) Example 6: CNOL deduction and application
of section 172. (1) P (a type of corporation other than
a nonlife insurance company) is the common parent
of a consolidated group that includes PC1 (a nonlife
insurance company). P and PC1 were both incorpo-
rated in Year 1 (a year beginning after December 31,
2020). In Year 1, P and PC1 have separate taxable
income of $20 and $25, respectively. As a result, the
P group has Year 1 consolidated taxable income of
$45. In Year 2, P has separate taxable income of $24,
and PC1 has a separate taxable loss of $40. Thus, the
P group has a Year 2 CNOL of $16. No member of
the P group engages in farming activities. See section
172(b)(1)(B)(ii).
(2) Under paragraph (b)(2)(iv)(B) of this section,
the P group’s Year 2 CNOL is entirely attributable to
PC1, a nonlife insurance company. Therefore, under
section 172(b)(1)(C)(i), the P group may carry back
to Year 1 all $16 of its Year 2 CNOL.
(3) Under paragraph (a)(2)(ii) of this section, the
amount of the Year 2 CNOL that may be used by
the P group in Year 1 is determined by taking into
account the status (nonlife insurance company or
other type of corporation) of the member that has
separate taxable income composing in whole or in
part the P group’s consolidated taxable income. Be-
cause the P group includes both a nonlife insurance
company member and a member that is not a nonlife
insurance company, paragraph (a)(2)(iii)(C) of this
section applies to determine the computation of the
post-2017 CNOL deduction limit for the group for
Year 1. Therefore, the 80-percent limitation is ap-
plied to the residual income pool, which consists of
the taxable income of P, a type of corporation other
than a nonlife insurance company. Under the 80-per-
cent limitation, the amount of P’s Year 1 income that
may be offset by the P group’s Year 2 CNOL is $16,
which equals the lesser of the aggregate amount of
post-2017 NOLs carried to Year 1 ($16), or 80 per-
cent of the excess of P’s taxable income for that year
($20) over the aggregate amount of pre-2018 NOLs
allocable to P ($0), which also is $16 (80 percent x
($20 - $0)). See paragraph (a)(2)(iii)(C)(2) and (4) of
this section. PC1 is a nonlife insurance company to
which section 172(f), rather than the 80-percent lim-
itation, applies. Therefore, the amount of PC1’s Year
1 income that may be offset by the P group’s Year
2 CNOL is $25, which equals the excess of PC1’s
taxable income for Year 1 ($25) over the aggregate
amount of pre-2018 NOLs allocable to PC1 ($0). See
paragraph (a)(2)(iii)(C)(3) and (4) of this section.
(4) Based on the analysis set forth in paragraph
(b)(2)(v)(F)(3) of this section, the P group’s post-
2017 CNOL deduction limit for Year 1 is $41 ($16
+ $25). Because the P group’s Year 2 CNOL is $16,
this amount would offset the Year 1 income of the
P group.
(G) Example 7: Pre-2018 and post-2017 CNOLs.
(1) P is the common parent of a consolidated group.
No member of the P group is a nonlife insurance
company or is engaged in a farming business, and no
member of the P group has a loss that is subject to a
SRLY limitation. The P group had the following con-
solidated taxable income or CNOL for the following
taxable years:
Table 1 to paragraph (b)(2)(v)(G)(1)
20142015201620172018201920202021
$60$0$0($90)$30($40)($100)$120
(2) Under section 172(a)(1), all $30 of the P
group’s 2018 consolidated taxable income is offset
by the 2017 CNOL carryover without limitation. The
remaining $60 of the P group’s 2017 CNOL is car-
ried over to 2021 under section 172(b)(1)(A)(ii)(I).
(3) Under section 172(b)(1)(D)(i)(I), the P
group’s $40 2019 CNOL is carried back to the five
taxable years preceding the year of the loss. Thus, the
P group’s $40 2019 CNOL is carried back to offset
$40 of its 2014 consolidated taxable income.
(4) Under section 172(a)(2) and paragraph (a)
(2)(i) of this section, the P group’s CNOL deduction
for 2021 equals the aggregate amount of pre-2018
NOLs carried to 2021 plus the group’s post-2017
CNOL deduction limit. The P group has $60 of pre-
2018 NOLs carried to 2021 ($90 - $30). Because no
member of the P group is a nonlife insurance compa-
ny, paragraph (a)(2)(iii)(A) of this section applies to
determine the computation of the group’s post-2017
CNOL deduction limit for 2021. See also section
172(a)(2)(B). Therefore, the post-2017 CNOL de-
duction limit of the P group for 2021 is $48, which
equals the lesser of the aggregate amount of post-
2017 NOLs carried to 2021 ($100), or 80 percent
of the excess of the P group’s consolidated taxable
income for that year computed without regard to
any deductions under sections 172, 199A, and 250
($120) over the aggregate amount of pre-2018
NOLs carried to 2021 ($60) (that is, 80 percent x
$60). Thus, the P group’s CNOL deduction for 2021
equals $108 ($60 pre-2018 NOLs carried to 2021 +
$48 post-2017 CNOL deduction limit). See section
172(a)(2) and paragraph (a)(2)(i) of this section. The
P group offsets $108 of its $120 of 2021 consolidat-
ed taxable income, resulting in $12 of consolidated
taxable income in 2021. The remaining $52 of the P
group’s 2020 CNOL ($100 - $48) is carried over to
future taxable years. See section 172(b)(1)(A)(ii)(II).
(3) * * *
(ii) * * *
(C) [The text of proposed §1.1502-
21(b)(3)(ii)(C) is the same as the text of
§1.1502-21T(b)(3)(ii)(C) published else-
where in this issue of the Federal Regis-
ter.]
(D) [The text of proposed §1.1502-
21(b)(3)(ii)(D) is the same as the text of
§1.1502-21T(b)(3)(ii)(D) published else-
where in this issue of the Federal Regis-
ter.]
* * * * *

July 20, 2020 214 Bulletin No. 2020–30
(c) * * *
(1) * * *
(i) General rule. Except as provided
in paragraph (g) of this section (relating
to an overlap with section 382), the ag-
gregate of the net operating loss carry-
overs and carrybacks of a member (SRLY
member) arising (or treated as arising) in
SRLYs (SRLY NOLs) that are included in
the CNOL deductions for all consolidated
return years of the group under paragraph
(a) of this section may not exceed the ag-
gregate consolidated taxable income for
all consolidated return years of the group
determined by reference to only the mem-
ber’s items of income, gain, deduction,
and loss (cumulative register). For this
purpose—
* * * * *
(E) If a limitation on the amount of
taxable income that may be offset under
section 172(a) (see paragraph (a)(2) of
this section) applies in a taxable year to a
member whose carryovers or carrybacks
are subject to a SRLY limitation (SRLY
member), the amount of net operating
loss subject to a SRLY limitation that is
available for use by the group in that year
is limited to the percentage of the balance
in the cumulative register that would be
available for offset under section 172(a) if
the SRLY member filed a separate return
and reported as taxable income in that year
the amount contained in the cumulative
register. For example, assume that a con-
solidated group has a SRLY member that
is a corporation other than a nonlife insur-
ance company, and that the SRLY member
has a SRLY NOL that arose in a taxable
year beginning after December 31, 2017
(post-2017 NOL). The group’s consoli-
dated taxable income for a consolidated
return year beginning after December 31,
2020 is $200, but the cumulative register
has a positive balance of only $120 (and
no other net operating loss carryovers or
carrybacks are available for the year). Be-
cause the SRLY limitation would be $96
($120 x 80 percent), only $96 of SRLY
loss may be used, rather than $160 ($200 x
80 percent). In addition, to the extent that
this paragraph (c)(1)(i)(E) applies, the cu-
mulative register is decreased by the full
amount of income required under section
172(a) to support the amount of SRLY
NOL absorption. See, for example, para-
graph (c)(1)(iii)(A) and (B) of this section
for examples illustrating the application of
this rule.
* * * * *
(iii) * * * For purposes of the examples
in this paragraph (c)(1)(iii), no corpora-
tion is a nonlife insurance company and,
unless otherwise specified, all taxable
years begin after December 31, 2020, and
all CNOLs arise in taxable years begin-
ning after December 31, 2020. * * *
(A) * * *
(2) T’s $100 net operating loss carryover from
Year 1 arose in a SRLY. See §1.1502-1(f)(2)(iii). P’s
acquisition of T was not an ownership change as de-
fined by section 382(g). Thus, the $100 net operating
loss carryover is subject to the SRLY limitation in
paragraph (c)(1) of this section. The positive balance
of the cumulative register of T for Year 2 equals the
consolidated taxable income of the P group deter-
mined by reference to only T’s items, or $70. How-
ever, due to the 80-percent limitation and the appli-
cation of paragraph (c)(1)(i)(E) of this section, the
SRLY limitation is $56 ($70 x 80 percent). No losses
from equivalent years are available, and the P group
otherwise has sufficient consolidated taxable income
to support the CNOL deduction ($300 x 80 percent =
$240). Therefore, $56 of the SRLY net operating loss
is included under paragraph (a) of this section in the
P group’s CNOL deduction for Year 2. Although only
$56 is absorbed, the cumulative register of T is re-
duced by $70, the full amount of income necessary to
support the $56 deduction after taking into account
the 80-percent limitation ($70 x 80 percent = $56).
* * * * *
(B) * * *
(2) P’s Year 1, Year 2, and Year 3 are not SRLYs
with respect to the P group. See §1.1502-1(f)(2)
(i). Thus, P’s $40 net operating loss arising in Year
1 and $120 net operating loss arising in Year 3 are
not subject to the SRLY limitation under paragraph
(c) of this section. Although the P group has $160 of
taxable income in Year 4, the 80-percent limitation
reduces the P group’s net operating loss deduction
in that year to $128 ($160 x 80 percent). Under the
principles of section 172, paragraph (b) of this sec-
tion requires that P’s $40 loss arising in Year 1 be
the first loss absorbed by the P group in Year 4. Ab-
sorption of this loss leaves $88 ($128 - $40) of the
P group’s Year 4 consolidated taxable income avail-
able for offset by loss carryovers.
(3) T’s Year 2 and Year 3 are SRLYs with respect
to the P group. See §1.1502-1(f)(2)(ii). P’s acquisi-
tion of T was not an ownership change as defined
by section 382(g). Thus, T’s $50 net operating loss
arising in Year 2 and $60 net operating loss arising in
Year 3 are subject to the SRLY limitation. The posi-
tive balance of the cumulative register of T for Year
4 equals the P group’s consolidated taxable income
determined by reference to only T’s items, or $70.
Under paragraph (c)(1)(i)(E) of this section, after
taking into account the 80-percent limitation, T’s
SRLY limitation is $56 ($70 x 80 percent). There-
fore, the P group can absorb up to $56 of T’s SRLY
net operating losses in Year 4. Under the principles
of section 172, T’s $50 SRLY net operating loss from
Year 2 is included under paragraph (a) of this section
in the P group’s CNOL deduction for Year 4. After
absorption of this loss, under paragraph (c)(1)(i) of
this section, $6 of SRLY limit remains in Year 4 ($56
- $50). Further, the total amount of Year 4 consolidat-
ed taxable income available for offset by other loss
carryovers under section 172(a) is $38 ($88 - $50).
(4) P and T each carry over net operating losses
to Year 4 from a taxable year ending on the same
date (that is, Year 3). The losses carried over from
Year 3 total $180. However, the remaining Year 4
SRLY limit is $6. Therefore, the total amount of loss
available for absorption is $126 ($120 allocable to P
and $6 allocable to T). Under paragraph (b) of this
section, the losses available for absorption that are
carried over from Year 3 are absorbed on a pro rata
basis, even though one loss arises in a SRLY and the
other loss does not. Thus, $36.19 of P’s Year 3 loss
is absorbed ($120/($120 + $6)) x $38 = $36.19. In
addition, $1.81 of T’s Year 3 loss is absorbed ($6/
($120 + $6)) x $38 = $1.81.
(5) After deduction of T’s SRLY net operating
losses in Year 4, the cumulative register of T is ad-
justed pursuant to paragraph (c)(1)(i)(E) of this sec-
tion. A total of $51.81 of SRLY net operating losses
were absorbed in Year 4 ($50 + $1.81). After taking
into account the 80-percent limitation, the amount of
income necessary to support this deduction is $64.76
($64.76 x 80 percent = $51.81). Therefore, the cumu-
lative register of T is decreased by $64.76, and $5.24
remains in the cumulative register ($70 - $64.76).
(6) P carries its remaining $83.81 ($120 - $36.19)
Year 3 net operating loss and T carries its remaining
$58.19 ($60 - $1.81) Year 3 net operating loss over
to Year 5. Assume that, in Year 5, the P group has $90
of consolidated taxable income (computed without
regard to the CNOL deduction). The P group’s con-
solidated taxable income determined by reference to
only T’s items is a CNOL of $4. Therefore, the pos-
itive balance of the cumulative register of T in Year
5 equals $1.24 ($5.24 - $4). Under paragraph (c)(1)
(i)(E) of this section, after taking into account the
80-percent limitation, T’s SRLY limitation is $0.99
($1.24 x 80 percent). For Year 5, the total amount
of Year 5 consolidated taxable income available for
offset by loss carryovers as a result of the 80-percent
limitation is $72 ($90 x 80 percent). Under para-
graph (b) of this section, the losses carried over from
Year 3 are absorbed on a pro rata basis, even though
one loss arises in a SRLY and the other loss does
not. Therefore, $71.16 of P’s Year 3 loss is absorbed
(($83.81/($83.81 + $0.99)) x $72 = $71.16). In addi-
tion, $0.83 of T’s Year 3 losses is absorbed (($0.99/
($83.81 + $0.99)) x $72 = $0.83).
* * * * *
(D) * * *
(2) Under §1.1502-15(a), T’s $100 of ordinary
loss in Year 3 constitutes a built-in loss that is subject
to the SRLY limitation under paragraph (c) of this
section. The amount of the limitation is determined
by treating the deduction as a net operating loss car-
ryover from a SRLY. The built-in loss is therefore
subject to both a SRLY limitation and the 80-percent
limitation for Year 3. The built-in loss is treated as
a net operating loss carryover solely for purposes
of determining the extent to which the loss is not
allowed by reason of the SRLY limitation, and for
all other purposes the loss remains a loss arising in
Year 3. See §1.1502-21(c)(1)(i)(D). Consequently,
under paragraph (b) of this section, the built-in loss
is absorbed by the P group before the net operating

Bulletin No. 2020–30 215 July 20, 2020
loss carryover from Year 1 is absorbed. The positive
balance of the cumulative register of T for Year 3
equals the P group’s consolidated taxable income
determined by reference to only T’s items, or $60.
Under paragraph (c)(1)(i)(E) of this section, after
taking into account the 80-percent limitation, the
SRLY limitation for Year 3 is $48 ($60 x 80 percent).
Therefore, $48 of the built-in loss is absorbed by the
P group. None of T’s $100 SRLY net operating loss
carryover from Year 1 is allowed.
(3) After deduction of T’s $48 SRLY built-in loss
in Year 4, the cumulative register of T is adjusted
pursuant to paragraph (c)(1)(i)(E) of this section.
After taking into account the 80-percent limitation,
the amount of income necessary to support this de-
duction is $60 ($60 x 80 percent = $48). Therefore,
the cumulative register of T is decreased by $60, and
zero remains in the cumulative register ($60 - $60).
(4) Under §1.1502-15(a), the $52 balance of the
built-in loss that is not allowed in Year 3 because of
the SRLY limitation and the 80-percent limitation is
treated as a $52 net operating loss arising in Year 3
that is subject to the SRLY limitation because, under
paragraph (c)(1)(ii) of this section, Year 3 is treated
as a SRLY. The built-in loss is carried to other years
in accordance with the rules of paragraph (b) of this
section. The positive balance of the cumulative reg-
ister of T for Year 4 equals $40 (zero from Year 3 +
$40). Under paragraph (c)(1)(i)(E) of this section, af-
ter taking into account the 80-percent limitation, the
SRLY limitation for Year 4 is $32 ($40 x 80 percent).
Therefore, under paragraph (c) of this section, $32 of
T’s $100 net operating loss carryover from Year 1 is
included in the CNOL deduction under paragraph (a)
of this section in Year 4.
(5) After deduction of T’s $32 SRLY net oper-
ating loss in Year 4, the cumulative register of T is
adjusted pursuant to paragraph (c)(1)(i)(E) of this
section. After taking into account the 80-percent
limitation, the amount of income necessary to sup-
port this deduction is $40 ($40 x 80 percent = $32).
Therefore, the cumulative register is decreased by
$40, and zero remains in the cumulative register
($40 - $40).
(E) * * *
(2) For Year 2, the P group computes separate
SRLY limits for each of T’s SRLY carryovers from
Year 1. The group determines its ability to use its
capital loss carryover before it determines its abili-
ty to use its ordinary loss carryover. Under section
1212, because the P group has no Year 2 capital gain,
it cannot absorb any capital losses in Year 2. T’s Year
1 net capital loss and the P group’s Year 2 consolidat-
ed net capital loss (all of which is attributable to T)
are carried over to Year 3.
(3) The P group’s ability to deduct net operating
losses in Year 2 is subject to the 80-percent limita-
tion, based on the P group’s consolidated taxable
income for the year. Thus, the group’s limitation for
Year 2 is $72 ($90 x 80 percent). However, use of
the Year 1 net operating loss also is subject to the
SRLY limitation. The positive balance of the cumu-
lative register of T applicable to SRLY net operating
losses for Year 2 equals the P group’s consolidated
taxable income determined by reference to only T’s
items, or $60. Under paragraph (c)(1)(i)(E) of this
section, after taking into account the 80-percent lim-
itation, the SRLY limitation for Year 2 is $48 ($60 x
80 percent). Therefore, only $48 of T’s Year 1 SRLY
net operating loss is absorbed by the P group in Year
2. T carries over its remaining $52 of its Year 1 loss
to Year 3.
(4) After deduction of T’s SRLY net operating
losses in Year 2, the net operating loss cumulative
register is adjusted pursuant to paragraph (c)(1)(i)
(E) of this section. The P group deducted $48 of T’s
SRLY net operating losses in Year 2. After taking
into account the 80-percent limitation, the amount of
taxable income necessary to support this deduction
is $60 ($60 x 80 percent = $48). Therefore, the net
operating loss cumulative register of T is decreased
by $60, and zero remains in the net operating loss
cumulative register ($60 - $60).
(5) For Year 3, the P group again computes sep-
arate SRLY limits for each of T’s SRLY carryovers
from Year 1. The group has consolidated net capital
gain (without taking into account a net capital loss
carryover deduction) of $30. Under §1.1502-22(c),
the aggregate amount of T’s $50 capital loss carry-
over from Year 1 that is included in computing the
P group’s consolidated net capital gain for all years
of the group (in this case, Years 2 and 3) may not ex-
ceed $30 (the aggregate consolidated net capital gain
computed by reference only to T’s items, including
losses and deductions actually absorbed (that is, $30
of capital gain in Year 3)). Thus, the P group may
include $30 of T’s Year 1 capital loss carryover in its
computation of consolidated net capital gain for Year
3, which offsets the group’s capital gains for Year 3.
T carries over its remaining $20 of its Year 1 capital
loss to Year 4. Therefore, the capital loss cumulative
register of T is decreased by $30, and zero remains
in the capital loss cumulative register ($30 - $30).
Further, because the net operating loss cumulative
register includes all taxable income of T included
in the P group, as well as all absorbed losses of T
(including capital items), a zero net increase occurs
in the net operating loss cumulative register. The P
group carries over the Year 2 consolidated net capital
loss to Year 4.
(6) The P group’s ability to deduct net operating
losses in Year 3 is subject to the 80-percent limitation,
based on the P group’s consolidated taxable income
for the year. Thus, the P group’s taxable income for
Year 3 that can be offset, before use of net operating
losses, is $40 (80 percent x the sum of zero capital
gain, after use of the capital loss carryover, plus $50
of ordinary income). However, use of the Year 1 net
operating loss also is subject to the SRLY limitation.
The positive balance of the cumulative register of T
applicable to SRLY net operating losses for Year 3
equals the P group’s consolidated taxable income de-
termined by reference only to T’s items, or $40. This
amount equals the sum obtained by adding the zero
carryover from Year 2, a net inclusion of zero from
capital items implicated in Year 3 ($30 - $30), and
$40 of taxable income in Year 3. Under paragraph (c)
(1)(i)(E) of this section, after taking into account the
80-percent limitation, the SRLY limitation for Year 3
is $32 ($40 x 80 percent). Therefore, only $32 of the
Year 1 net operating loss is absorbed by the P group
in Year 3. T carries over its remaining $20 of its Year
1 loss to Year 4.
(F) Example 6: Pre-2018 NOLs and post-2017
NOLs. (1) Individual A owns P. On January 1, 2017,
A forms T. P and T are calendar-year taxpayers. In
2017, T sustains a $100 net operating loss that is car-
ried over. During 2018, 2019, and 2020, T deducts a
total of $90 of its 2017 net operating loss against its
taxable income, and T carries over the remaining $10
of its 2017 net operating loss. In 2021, T sustains a
net operating loss of $50. On December 31, 2021, P
acquires all the stock of T, and T becomes a member
of the P group. The P group has $300 of consolidated
taxable income in 2022 (computed without regard
to the CNOL deduction). Such consolidated taxable
income would be $70 if determined by reference to
only T’s items. The P group has no other SRLY net
operating loss carryovers or CNOL carryovers.
(2) T’s remaining $10 of net operating loss carry-
over from 2017 and its $50 net operating loss carry-
over from 2021 are both SRLY losses in the P group.
See §1.1502-1(f)(2)(iii). P’s acquisition of T was not
an ownership change as defined by section 382(g).
Thus, T’s net operating loss carryovers are subject to
the SRLY limitation in paragraph (c)(1) of this sec-
tion. The SRLY limitation for the P group’s 2022 con-
solidated return year is consolidated taxable income
determined by reference to only T’s items, or $70.
(3) Because T’s oldest (2017) carryover was sus-
tained in a year beginning before January 1, 2018, its
use is not subject to limitation under section 172(a)(2)
(B). Therefore, all $10 of T’s 2017 SRLY net operat-
ing loss (that is, a pre-2018 NOL) is included under
paragraph (a) of this section in the P group’s CNOL
deduction for 2022. After deduction of T’s $10 SRLY
net operating loss from 2017, the cumulative register
of T is reduced on a dollar-for-dollar basis, pursuant
to paragraph (c)(1)(i) of this section. Therefore, the
cumulative register of T is decreased by $10, and $60
remains in the cumulative register ($70 - $10).
(4) The P group’s deduction of T’s 2021 net op-
erating loss is subject to both a SRLY limitation and
the 80-percent limitation under section 172(a)(2)
(B). Therefore, the total limitation on the use of T’s
2021 net operating loss in the P group is $48 (the re-
maining cumulative register of $60 x 80 percent). No
losses from equivalent years are available, and the P
group otherwise has sufficient consolidated taxable
income to support the CNOL deduction ($290 x 80
percent = $232). Therefore, $48 of T’s 2021 SRLY
net operating loss is included under paragraph (a)
of this section in the P group’s CNOL deduction for
2022. The remaining $2 of T’s 2021 SRLY net oper-
ating loss ($50 - $48) is carried over to the P group’s
2023 consolidated return year.
(5) After deduction of T’s $48 SRLY NOL in
2022, the cumulative register of T is adjusted pur-
suant to paragraph (c)(1)(i)(E) of this section. After
taking into account the 80-percent limitation, the
amount of income necessary to support this deduc-
tion is $60 ($60 x 80 percent = $48). Therefore, the
cumulative register of T is decreased by $60, and
zero remains in the cumulative register ($60 - $60).
(2) * * *
(v) Coordination with other limita-
tions. This paragraph (c)(2) does not al-
low a net operating loss to offset income
to the extent inconsistent with other lim-
itations or restrictions on the use of losses,
such as a limitation based on the nature
or activities of members. For example, a
net operating loss may not offset income
in excess of any limitations under section

July 20, 2020 216 Bulletin No. 2020–30
172(a) and paragraph (a)(2) of this sec-
tion. Additionally, any dual consolidated
loss may not reduce the taxable income
to an extent greater than that allowed un-
der section 1503(d) and §§ 1.1503(d)–1
through 1.1503(d)–8. See also § 1.1502–
47(k) (relating to preemption of rules for
life-nonlife groups).
* * * * *
(viii) * * * For purposes of the exam-
ples in this paragraph (c)(2)(viii), no cor-
poration is a nonlife insurance company
or has any farming losses. * * *
* * * * *
(B) * * *
(3) In Year 4, the M group has $10 of consoli-
dated taxable income (computed without regard to
the CNOL deduction for Year 4). That consolidated
taxable income would be $45 if determined by ref-
erence only to the items of P, S, and T, the members
included in the SRLY subgroup with respect to P’s
loss carryover. Therefore, the positive balance of
the cumulative register of the P SRLY subgroup for
Year 4 equals $45 and, due to the application of the
80-percent limitation under paragraph (c)(2)(v) of
this section, the SRLY subgroup limitation under this
paragraph (c)(2) is $36 ($45 x 80 percent). However,
the M group has only $10 of consolidated taxable
income in Year 4. Thus, due to the 80-percent lim-
itation and the application of paragraph (b)(1) of this
section, the M group’s deduction of all net operating
losses in Year 4 is limited to $8 ($10 x 80 percent).
As a result, the M group deducts $8 of P’s SRLY net
operating loss carryover, and the remaining $37 is
carried over to Year 5.
(4) After deduction of $8 of P’s SRLY net oper-
ating loss in Year 4, the cumulative register of the
P SRLY subgroup is adjusted pursuant to paragraph
(c)(1)(i)(E) of this section. After taking into account
the 80-percent limitation, the amount of income
necessary to support this deduction is $10 ($10 x 80
percent = $8). Therefore, the cumulative register of
the P SRLY subgroup is decreased by $10, and $35
remains in the cumulative register ($45 - $10).
(5) In Year 5, the M group has $100 of consoli-
dated taxable income (computed without regard to the
CNOL deduction for Year 5). None of P, S, or T has
any items of income, gain, deduction, or loss in Year
5. Although the members of the P SRLY subgroup
do not contribute to the $100 of consolidated taxable
income in Year 5, the positive balance of the cumu-
lative register of the P SRLY subgroup for Year 5 is
$35 and, due to the application of the 80-percent lim-
itation under paragraph (c)(2)(v) of this section, the
SRLY subgroup limitation under this paragraph (c)(2)
is $28 ($35 x 80 percent). Because of the 80-percent
limitation and the application of paragraph (b)(1) of
this section, the M group’s deduction of net operating
losses in Year 5 is limited to $80 ($100 x 80 percent).
Because the $28 of net operating loss available to be
absorbed is less than 80 percent of the M group’s con-
solidated taxable income, $28 of P’s SRLY net oper-
ating loss is absorbed in Year 5, and the remaining $9
($37 - $28) is carried over to Year 6.
(6) After deduction of $28 of P’s SRLY net op-
erating loss in Year 5, the cumulative register of the
P SRLY subgroup is adjusted pursuant to paragraph
(c)(1)(i)(E) of this section. After taking into account
the 80-percent limitation, the amount of income
necessary to support this deduction is $35 ($35 x 80
percent = $28). Therefore, the cumulative register of
the P SRLY subgroup is decreased by $35, and zero
remains in the cumulative register ($35 - $35).
* * * * *
(h) * * *
(9) [The text of proposed §1.1502-
21(h)(9) is the same as the text of §1.1502-
21T(h)(9) published elsewhere in this is-
sue of the Federal Register.]
(10) The rules of paragraphs (a), (b)
(1), (b)(2)(iv), and (c)(1)(i)(E) of this
section apply to losses arising in taxable
years beginning after [the date the Trea-
sury decision adopting these rules as final
regulations is published in the Federal
Register].
Par. 4. Section 1.1502-47 is amended
by:
1. Revising paragraphs (a)(2)(i) and
(ii).
2. Removing paragraph (a)(3).
3. Redesignating paragraph (a)(4) as
paragraph (a)(3).
4. Removing paragraph (j).
5. Redesignating paragraph (n) as para-
graph (j).
6. Redesignating paragraph (b) as para-
graph (n).
7. Redesignating paragraph (t) as para-
graph (n)(3).
8. Removing paragraph (c).
9. Redesignating paragraph (d) as para-
graph (b).
10. Revising newly redesignated para-
graph (b)(1).
11. Removing newly redesignated
paragraph (b)(2).
12. Redesignating newly redesignated
paragraphs (b)(3) through (14) as para-
graphs (b)(2) through (13), respectively.
13. Revising newly redesignated para-
graphs (b)(2), (3), (4), (9), (10), and (12).
14. In newly redesignated paragraph
(b)(13), designating Examples 1 through
14 as paragraphs (b)(13)(i) through (xiv),
respectively.
15. In newly redesignated paragraph
(b)(13)(i), adding a new last sentence.
16. Revising newly redesignated para-
graph (b)(13)(ii).
17. Removing newly redesignated
paragraph (b)(13)(xiv).
18. Redesignating paragraph (e) as
paragraph (c).
19. Removing newly redesignated
paragraphs (c)(4) and (5).
20. Redesignating paragraph (c)(6) as
paragraph (c)(4).
21. Redesignating paragraph (f) as
paragraph (d).
22. Revising newly redesignated para-
graph (d)(5).
23. Removing the last sentence of new-
ly redesignated paragraph (d)(6).
24. Removing newly redesignated
paragraph (d)(7)(ii).
25. Redesignating paragraph (d)(7)(iii)
as paragraph (d)(7)(ii) and revising it.
26. Redesignating paragraph (g) as
paragraph (e).
27. In newly redesignated paragraph
(e)(2), removing the language “partial”
each place it appears.
28. Removing newly redesignated
paragraph (e)(3).
29. Redesignating paragraph (h) as
paragraph (f).
30. Revising newly redesignated para-
graph (f)(2)(iii).
31. In newly designated paragraph (f)
(2)(v), removing the language “partial”
each place it appears.
32. In newly designated paragraph (f)
(2)(v), adding a new last sentence.
33. Revising newly designated para-
graph (f)(2)(vi) and (vii).
34. Removing newly designated para-
graph (f)(3).
35. Redesignating newly designated
paragraph (f)(4) as paragraph (f)(3).
36. Revising newly redesignated para-
graph (f)(3)(ii).
37. Adding a new paragraph (g).
38. Redesignating paragraph (k)(5) in-
troductory text as paragraph (g)(3)(ii), and
redesignating paragraphs (k)(5)(i) through
(iv) as paragraphs (g)(3)(ii)(A) through
(D), respectively.
39. Removing newly redesignated
paragraphs (g)(3)(ii)(C) and (D).
40. Removing paragraphs (k) and (l).
41. Redesignating paragraph (m) as
paragraph (h).
42. In newly redesignated paragraph
(h), removing the language “partial” each
place it appears.
43. In newly redesignated paragraph
(h)(2)(ii), adding a new last sentence.
44. In newly redesignated paragraph
(h)(3)(iv), adding a new last sentence.

Bulletin No. 2020–30 217 July 20, 2020
45. In newly redesignated paragraph
(h)(3)(ix), removing the last two sentenc-
es.
46. Removing newly redesignated
paragraph (h)(4).
47. Redesignating newly redesignated
paragraph (h)(5) as paragraph (h)(4).
48. Revising newly redesignated para-
graph (h)(4) introductory text.
49. In newly redesignated paragraph
(h)(4), redesignating Examples 1 through
6 as paragraphs (h)(4)(i) through (vi).
50. Revising newly designated para-
graphs (h)(4)(ii) and (iii).
51. Removing newly designated para-
graphs (h)(4)(v) and (vi).
52. In newly redesignated paragraph
(j)(2)(iii), removing the language “, and
“section 812(b)(3)” and adding in its place
“section 172(b)(3)(C)”.
53. Removing newly redesignated
paragraph (j)(2)(v).
54. Redesignating newly redesignated
paragraph (j)(2)(vi) as paragraph (j)(2)(v).
55. Revising newly redesignated para-
graph (j)(3).
56. In newly redesignated paragraph
(n)(3), removing the language “Effec-
tive/applicability date” and adding the
language “Filing requirements effective
dates” in its place.
57. Adding paragraph (n)(4).
58. Removing paragraphs (o) and (p).
59. Redesignating paragraphs (q), (r),
and (s) as paragraphs (k), (l), and (m), re-
spectively.
59. In the following table, for each
section designated or redesignated under
these proposed regulations (as indicated
in the second column), removing the lan-
guage in the third column and adding the
language in the fourth column with the
frequency indicated in the fifth column:
ParagraphRedesignationRemoveAddFrequency
1.1502-47(a)(1)N/Asection 802 or 821
(relating respectively to
life insurance com-
panies and to certain
mutual insurance com-
panies)
section 801 (relating to
life insurance companies)
Once
1.1502-47(a)(1)N/Alife insurance compa-
nies and mutual insur-
ance companies may
life insurance companies
may
Once
1.1502-47(a)(1)N/Acomposition and its
consolidated tax
composition, its consoli-
dated taxable income (or
loss), and its consolidat-
ed tax
Once
1.1502-47(a)(4)1.1502-47(a)(3)
§§ 1.1502-1 through
1.1502-80
§§1.1502-0 through
1.1502-100
Once
1.1502-47(a)(4)1.1502-47(a)(3)844848Once
1.1502-47(b)1.1502-47(n)Effective datesEffective/applicability
dates
Once
1.1502-47(b)(1)1.1502-47(n)(1)paragraph (b)(2)paragraph (n)(2) and (3)Once
1.1502-47(b)(2)(i)1.1502-47(n)(2)(i)Paragraph (d)(12)(v)Paragraph (b)(11)(v)Once
1.1502-47(d)(12)(i)(A), (d)
(12)(i)(C), (d)(12)(i)(D),
(d)(12)(iii), (d)(12)(iv), (d)
(12)(v), (d)(12)(v)(B), (d)
(12)(v)(C), (d)(12)(v)(D),
(d)(12)(vi), (d)(12)(vii),
and (d)(12)(viii)(F)
1.1502-47(b)(11)(i)(A), (b)
(11)(i)(C), (b)(11)(i)(D), (b)
(11)(iii), (b)(11)(iv), (b)(11)
(v), (b)(11)(v)(B), (b)(11)
(v)(C), (b)(11)(v)(D), (b)
(11)(vi), (b)(11)(vii), and
(b)(11)(viii)(F), respec-
tively
(d)(12)(b)(11)Each place it
appears
1.1502-47(d)(12)(iii)1.1502-47(b)(11)(iii)subdivision (iii)paragraph (b)(11)(iii)Once
1.1502-47(d)(12)(iv)1.1502-47(b)(11)(iv)subdivision (iv)paragraph (b)(11)(iv)Once
1.1502-47(d)(12)(v)(B)1.1502-47(b)(11)(v)(B)(i.e., sections 11, 802,
821, or 831)
(for example, section 11,
section 801, or section
831)
Once
1.1502-47(d)(12)(vi)1.1502-47(b)(11)(vi)subdivision (vi)paragraph (b)(11)(vi)Once
1.1502-47(d)(12)(vii)1.1502-47(b)(11)(vii)return year and evenreturn year evenOnce

July 20, 2020 218 Bulletin No. 2020–30
ParagraphRedesignationRemoveAddFrequency
1.1502-47(d)(12)(viii)(A)1.1502-47(b)(11)(viii)(A)(i.e., total reserves in
section 801(c))
(that is, total reserves in
section 816(c), as modi-
fied by section 816(h))
Once
1.1502-47(d)(12)(viii)(D)
and (F)
1.1502-47(b)(11)(viii)(D)
and (F), respectively
subdivision (viii)paragraph (b)(11)(viii)Once
1.1502-47(d)(14)1.1502-47(b)(13)
IllustrationsExamples
Once
1.1502-47(d)(14)1.1502-47(b)(13)paragraph (d)paragraph (b)Once
1.1502-47(d)(14), Example
1
1.1502-47(b)(13)(i)19132012Once
1.1502-47(d)(14), Exam-
ples 2 through 4, 8, 10, and
12
1.1502-47(b)(13)(ii)
through (iv), (viii), (x), and
(xii), respectively
19742012Each place it
appears
1.1502-47(d)(14), Exam-
ples 1 through 3
1.1502-47(b)(13)(i) through
(iii), respectively
19802018Each place it
appears
1.1502-47(d)(14), Exam-
ples 1 through 5 and 8
through 13
1.1502-47(b)(13)(i) through
(v) and (viii) through (xiii),
respectively
19822020Each place it
appears
1.1502-47(d)(14), Exam-
ples 5 through 7 and 9
1.1502-47(b)(13)(v)
through (vii) and (ix),
respectively
19832021Each place it
appears
1.1502-47(d)(14), Exam-
ples 2 through 5 and 8
through 12
1.1502-47(b)(13)(ii)
through (v) and (viii)
through (xii), respectively
(d)(12)(b)(11)Each place it
appears
1.1502-47(d)(14), Exam-
ples 2, 3, and 12
1.1502-47(b)(13)(ii), (iii),
and (xii), respectively
stock casualtynonlife insuranceEach place it
appears
1.1502-47(d)(14), Example
3
1.1502-47(b)(13)(iii)subparagraph (d)(12)(v)
(B) and (E)
paragraph (b)(11)(v)(B)
and (D)
Once
1.1502-47(d)(14), Example
3
1.1502-47(b)(13)(iii)e.g.for exampleOnce
1.1502-47(d)(14), Example
5
1.1502-47(b)(13)(v)i.e.in other wordsOnce
1.1502-47(d)(14), Example
12
1.1502-47(b)(13)(xii)casualtynonlife insuranceOnce
1.1502-47(e)(1)1.1502-47(c)(1)life company or an inel-
igible mutual company.
life company.Once
1.1502-47(e)(3)1.1502-47(c)(3)§ 1.1502-75(c) and
paragraph (e)(4) of this
section,
§1.1502-75(c),Once
1.1502-47(f)(3)1.1502-47(d)(3)19812019Each place it
appears
1.1502-47(f)(3)1.1502-47(d)(3)19822020Each place it
appears
1.1502-47(f)(3)1.1502-47(d)(3)applying §§ 1.1502-13,
1.1502-18, and 1.1502-
19
applying §§1.1502-13
and 1.1502-19
Once
1.1502-47(f)(7)(i)1.1502-47(d)(7)(i)paragraph (g)paragraph (e)Once
1.1502-47(f)(7)(i)1.1502-47(d)(7)(i)sections 802(a), 821(a),
and 831(a)
sections 801(a) and
831(a)
Once
1.1502-47(g)1.1502-47(e)threetwoOnce

Bulletin No. 2020–30 219 July 20, 2020
ParagraphRedesignationRemoveAddFrequency
1.1502-47(g)(1)1.1502-47(e)(1)paragraph (h)paragraph (f)Once
1.1502-47(g)(1)1.1502-47(e)(1)paragraph (n)paragraph (j)Once
1.1502-47(g)(1)1.1502-47(e)(1)paragraph (g)(1)paragraph (e)(1)Once
1.1502-47(g)(2)1.1502-47(e)(2)paragraph (j)paragraph (g)(1)Once
1.1502-47(g)(2)1.1502-47(e)(2)paragraph (m)paragraph (h)Once
1.1502-47(g)(2)1.1502-47(e)(2)paragraph (g)(2)paragraph (e)(2)Once
1.1502-47(h)(1)1.1502-47(f)(1)paragraph (h)paragraph (f)Once
1.1502-47(h)(1)1.1502-47(f)(1)includes separate mutu-
al insurance company
taxable income (as de-
fined in section 821(b))
and insurance company
taxable income
includes insurance com-
pany taxable income
Once
1.1502-47(h)(2)(i)1.1502-47(f)(2)(i)§§ 1.1502-21 or
1.1502-21A (as appro-
priate), the rules in this
subparagraph (2)
§1.1502-21, the rules in
this paragraph (f)(2)
Once
1.1502-47(h)(2)(ii)1.1502-47(f)(2)(ii)§§ 1.1502-21(A)(f) or
1.1502-21(e) (as appro-
priate)
§1.1502-21(e)Once
1.1502-47(h)(2)(iv)1.1502-47(f)(2)(iv)year beginning after
December 31, 1981,
§§ 1.1502-21A or
1.1502-21 (as appro-
priate)
year, §1.1502-21Once
1.1502-47(h)(2)(iv)1.1502-47(f)(2)(iv)nonlife lossnonlife subgroup lossOnce
1.1502-47(h)(2)(v)1.1502-47(f)(2)(v)subparagraph (2)paragraph (f)(2)Once
1.1502-47(h)(4)(i)1.1502-47(f)(3)(i)§§ 1.1502-22 or
1.1502-22A (as appro-
priate)
§1.1502-22Once
1.1502-47(h)(4)(i)1.1502-47(f)(3)(i)subparagraph (4)paragraph (f)(3)Once
1.1502-47(h)(4)(i)1.1502-47(f)(3)(i)§§ 1.1502-22 or
1.1502-22A(a) (as
appropriate)
§1.1502-22Once
1.1502-47(h)(4)(iii)1.1502-47(f)(3)(iii)§§ 1.1502–22A(b)(1) or
1.1502-22(b)
§1.1502-22(b),Once
1.1502-47(h)(4)(iii)(A)1.1502-47(f)(3)(iii)(A)allowed under section
822(c)(6) or section
832(c)(5),
allowed under section
832(c)(5),
Once
1.1502-47(k)(5)1.1502-47(g)(3)(ii)§ § 1.1502-22 or
1.1502-22A (as appro-
priate)
§1.1502-22Once
1.1502-47(k)(5)1.1502-47(g)(3)(ii)this subparagraph (5)this paragraph (g)(3)(ii)Once
1.1502-47(k)(5)(ii)1.1502-47(g)(3)(ii)(B)paragraph (k)(5)paragraph (g)(3)(ii)Once
1.1502-47(m)1.1502-47(h)paragraph (g)paragraph (e)Each place it
appears
1.1502-47(m)1.1502-47(h)paragraph (h)paragraph (f)Each place it
appears

July 20, 2020 220 Bulletin No. 2020–30
ParagraphRedesignationRemoveAddFrequency
1.1502-47(m)1.1502-47(h)paragraph (l)paragraph (g)Each place it
appears
1.1502-47(m)1.1502-47(h)paragraph (m)paragraph (h)Each place it
appears
1.1502-47(m)(2)(ii)1.1502-47(h)(2)(ii)§§ 1502-21 or 1.1502-
21A (as appropriate)
§1.1502-21Once
1.1502-47(m)(2)(ii)1.1502-47(h)(2)(ii)§§ 1.1502-22 or
1.1502-22A (as appro-
priate)
§1.1502-22Once
1.1502-47(m)(3)(i)1.1502-47(h)(3)(i)But see subdivision (ix)
of this paragraph (m)(3)
But see paragraph (h)(3)
(ix) of this section
Once
1.1502-47(m)(3)(i)1.1502-47(h)(3)(i)arising in separate re-
turn years ending after
December 31, 1980,
arising in separate return
years
Once
1.1502-47(m)(3)(i)1.1502-47(h)(3)(i)and 1.1502-22 (or
§§ 1.1502-21A and
1.1502-22A, as appro-
priate).
and 1.1502-22.Once
1.1502-47(m)(3)(iii)1.1502-47(h)(3)(iii)consolidated LOlife consolidated net
operating loss
Once
1.1502-47(m)(3)(v)1.1502-47(h)(3)(v)GO or TIItaxable incomeOnce
1.1502-47(m)(3)(v)1.1502-47(h)(3)(v)LICTI (as determined
under paragraph (j) of
this section) for any
LICTI for anyOnce
1.1502-47(m)(3)(vi)(A)1.1502-47(h)(3)(vi)(A)subparagraph (3)paragraph (h)(3)Once
1.1502-47(m)(3)(vii)(A)1.1502-47(h)(3)(vii)(A)notwithstanding
§ 1.1502-21A(b)(3)(ii)
or 1.1502-21(b),
notwithstanding §1.1502-
21(b),
Once
1.1502-47(m)(3)(vii)(A)1.1502-47(h)(3)(vii)(A)taxable income for that
year.
taxable income for that
year, subject to the lim-
itation in section 172(a).
Once
1.1502-47(m)(3)(vii)(B)1.1502-47(h)(3)(vii)(B)(A) of this subdivision
(vii)
paragraph (h)(3)(vii)(A)
of this section
Once
1.1502-47(m)(3)(viii)1.1502-47(h)(3)(viii)section 172(b)(3)(C)section 172(b)(3)Once
1.1502-47(m)(3)(ix)1.1502-47(h)(3)(ix)243(b)(2)243(b)(3)Once
1.1502-47(m)(3)(ix)1.1502-47(h)(3)(ix)return year ending after
December 31, 1980,
return year,Once
1.1502-47(m)(3)(x)1.1502-47(h)(3)(x)LICTI (as defined in
paragraph (j) of this
section) in the partic-
ular
LICTI in the particularOnce
1.1502-47(m)(3)(xii)1.1502-47(h)(3)(xii)carryback of a consoli-
dated LO
carryback of a life con-
solidated net operating
loss
Once
1.1502-47(m)(3)(xii)1.1502-47(h)(3)(xii)(2) or (4)(2) or (3)Once
1.1502-47(m)(5), Examples
1 through 4
1.1502-47(h)(4)(i) through
(iv), respectively
19822021Each place it
appears
1.1502-47(m)(5), Examples
1 through 4
1.1502-47(h)(4)(i) through
(iv), respectively
i.e.that isEach place it
appears

Bulletin No. 2020–30 221 July 20, 2020
ParagraphRedesignationRemoveAddFrequency
1.1502-47(m)(5), Example
1
1.1502-47(h)(4)(i)paragraph (d)(13)paragraph (b)(12)Once
1.1502-47(m)(5), Example
1
1.1502-47(h)(4)(i)attributable to I (an
ineligible member)
attributable to I (an
ineligible member that is
not a nonlife insurance
company)
Once
1.1502-47(m)(5), Example
1
1.1502-47(h)(4)(i)of this section. The
result would be
of this section and sec-
tion 172(a). The result
would be
Once
1.1502-47(m)(5), Example
4
1.1502-47(h)(4)(iv)of this section or under
§ 1.1502-15A.
of this section.Once
1.1502-47(m)(5), Example
4
1.1502-47(h)(4)(iv)taxable income is $35taxable income is $32.5Once
1.1502-47(m)(5), Example
4
1.1502-47(h)(4)(iv)30%35%Once
1.1502-47(m)(5), Example
4
1.1502-47(h)(4)(iv)(15)(17.5)Once
1.1502-47(m)(5), Example
4
1.1502-47(h)(4)(iv)(65)(67.5)Once
1.1502-47(m)(5), Example
4
1.1502-47(h)(4)(iv)(85)(82.5)Once
1.1502-47(n)1.1502-47(j)consolidated LOlife consolidated net
operating loss and con-
solidated operations loss
carryovers
Each place it
appears
1.1502-47(n)(1)1.1502-47(j)(1)paragraph (g)(1)paragraph (e)(1)Once
1.1502-47(n)(1)1.1502-47(j)(1)paragraph (n)(2) of this
section
paragraph (j)(2) of this
section, subject to the
rules and limitations in
paragraph (j)(3) of this
section
Once
1.1502-47(n)(1)1.1502-47(j)(1)consolidated net capital
loss (as determined
under paragraph (l)(4)
of this section).
consolidated net capital
loss.
Once
1.1502-47(n)(2)1.1502-47(j)(2)paragraph (h)paragraph (f)Once
1.1502-47(n)(2)1.1502-47(j)(2)paragraphs (m)(2) and
(3)
paragraphs (h)(2) and (3)Once
1.1502-47(n)(2)(ii)1.1502-47(j)(2)(ii)consolidated partial
LICTI
consolidated LICTIOnce
1.1502-47(n)(2)(iii)1.1502-47(j)(2)(iii)“paragraph (l)” or
“paragraph (j)”
“paragraph (g)”Once
1.1502-47(n)(2)(iii)1.1502-47(j)(2)(iii)paragraph (h)paragraph (f)Once
1.1502-47(n)(2)(iv)1.1502-47(j)(2)(iv)Paragraphs (m)(3)(vi),
(vii), (x), and (xi)
Paragraphs (h)(3)(vi),
(vii), (x), and (xi)
Once
1.1502-47(q)1.1502-47(k)1.1502-801.1502-100Once
1.1502-47(q)1.1502-47(k)paragraph (m)(3)(vi)paragraph (h)(3)(vi)Once

July 20, 2020 222 Bulletin No. 2020–30
ParagraphRedesignationRemoveAddFrequency
1.1502-47(q)1.1502-47(k)
§§ 1.1502-21A(b)(3)
and 1.1502-79A(a)
(3) (or § 1.1502-21, as
appropriate)
§1.1502-21Once
1.1502-47(r)1.1502-47(l)partial LICTI (or LO)LICTI (or life consolidat-
ed net operating loss)
Once
1.1502-47(r)1.1502-47(l)
§§ 1.1502-0 - 1.1502-
80
§§1.1502-0 through
1.1502-100
Once
1.1502-47(s)(1)(iii)1.1502-47(m)(1)(iii)paragraphs (g), (m),
and (n)
paragraphs (e), (h), and
(j)
Once
1.1502-47(s)(1)(iv)1.1502-47(m)(1)(iv)paragraph (h)paragraph (f)Once
1.1502-47(s)(1)(v)1.1502-47(m)(1)(v)consolidated partial
Life
consolidated LifeOnce
1.1502-47(s)(1)(v)1.1502-47(m)(1)(v)(as defined by para-
graph (d)(3) of this
section), determined
under paragraph (j) of
this section,
or life consolidated net
operating loss
Once
1.1502-47(t)1.1502-47(n)(3)Paragraph (s)Paragraph (m)Once
1.1502-47(t)1.1502-47(n)(3)paragraph (s)paragraph (m)Once
The additions and revisions read as fol-
lows:
§1.1502-47 Consolidated returns by
life-nonlife groups.
(a) * * *
(2) General method of consolidation—
(i) Subgroup method. The regulations
adopt a subgroup method to determine
consolidated taxable income. One sub-
group is the group’s nonlife companies.
The other subgroup is the group’s life in-
surance companies. Initially, the nonlife
subgroup computes nonlife consolidated
taxable income and the life subgroup com-
putes consolidated LICTI. A subgroup’s
income may in effect be reduced by a loss
of the other subgroup, subject to the lim-
itations in sections 172 and 1503(c). The
life subgroup losses consist of life con-
solidated net operating loss, consolidated
operations loss carryovers from taxable
years beginning before January 1, 2018
(consolidated operations loss carryovers),
and life consolidated net capital loss. The
nonlife subgroup losses consist of nonlife
consolidated net operating loss and non-
life consolidated net capital loss. Consol-
idated taxable income is therefore defined
in pertinent part as the sum of nonlife con-
solidated taxable income and consolidated
LICTI, reduced by life subgroup losses
and/or nonlife subgroup losses.
(ii) Subgroup loss. A subgroup loss
does not actually affect the computation
of nonlife consolidated taxable income
or consolidated LICTI. It merely consti-
tutes a bottom-line adjustment in reaching
consolidated taxable income. Further-
more, the amount of a subgroup’s loss, if
any, that is eligible to be carried back to
a prior taxable year first must be carried
back against income of the same subgroup
before it may be used as a setoff against
the other subgroup’s income in the taxable
year the loss arose. (See sections 172(b)
(1) and 1503(c)(1); see also §1.1502-
21(b)). The carryback of losses from one
subgroup may not be used to offset income
of the other subgroup in the year to which
the loss is to be carried. This carryback of
one subgroup’s loss may “bump” the other
subgroup’s loss that, in effect, previously
reduced the income of the first subgroup.
The subgroup’s loss that is bumped in
appropriate cases may, in effect, reduce
a succeeding year’s income of either
subgroup. This approach gives the group
the tax savings of the use of losses, but
the bumping rule assures that, insofar as
possible, life deductions will be matched
against life income and nonlife deductions
against nonlife income.
* * * * *
(b) * * *
(1) Life company. The term life com-
pany means a life insurance company as
defined in section 816 and subject to tax
under section 801. Section 816 applies to
each company separately.
(2) Life insurance company taxable
income. The term life insurance company
taxable income or LICTI has the meaning
provided in section 801(b).
(3) Group. The term group has the
meaning provided in §1.1502-1(a). Un-
less otherwise indicated in this section, a
group’s composition is determined with-
out regard to section 1504(b)(2).
(4) Member. The term member has the
meaning provided in §1.1502-1(b). A life
company is tentatively treated as a mem-
ber for any taxable year for purposes of
determining if it is an eligible corporation
under paragraph (b)(10) of this section
and, therefore, if it is an includible cor-
poration under section 1504(c)(2). If such
a company is eligible and includible (un-
der section 1504(c)(2)), it will actually be
treated as a member of the group.
* * * * *

Bulletin No. 2020–30 223 July 20, 2020
(9) Separate return year. The term sep-
arate return year has the meaning provid-
ed in §1.1502-1(e). For purposes of this
paragraph (b)(9), the term group is defined
with regard to section 1504(b)(2) for years
in which an election under section 1504(c)
(2) is not in effect. Thus, a separate return
year includes a taxable year for which that
election is not in effect.
(10) Separate return limitation year.
Section 1.1502-1(f)(2) provides excep-
tions to the definition of the term separate
return limitation year. For purposes of
applying those exceptions to this section,
the term group is defined without regard
to section 1504(b)(2), and the definition
in this paragraph (b)(10) applies separate-
ly to the nonlife subgroup in determining
nonlife consolidated taxable income un-
der paragraph (f) of this section and to the
life subgroup in determining consolidated
LICTI under paragraph (g) of this section.
Paragraph (h)(3)(ix) of this section defines
the term separate return limitation year for
purposes of determining whether the loss-
es of one subgroup may be used against
the income of the other subgroup.
* * * * *
(12) Ineligible corporation. A corpora-
tion that is not an eligible corporation is
ineligible. If a life company is ineligible,
it is not treated under section 1504(c)(2)
as an includible corporation. Losses of a
nonlife member arising in years when it is
ineligible may not be used under section
1503(c)(2) and paragraph (g) of this sec-
tion to set off the income of a life mem-
ber. If a life company is ineligible and is
the common parent of the group (without
regard to section 1504(b)(2)), the elec-
tion under section 1504(c)(2) may not be
made.
(13) * * *
(i) * * * S
2
must file its own separate
return for 2020.
(ii) Example 2. Since 2012, L1 has been a life
company owning all the stock of L2. In 2018, L1
transfers assets to S1, a new nonlife insurance com-
pany subject to taxation under section 831(a). For
2020, only L1 and L2 are eligible corporations. The
tacking rule in paragraph (b)(11)(v) of this section
does not apply in 2020 because the old corporation
(L1) and the new corporation (S1) do not have the
same tax character.
* * * * *
(d) * * *
* * * * *
(5) Dividends received deduction—(i)
Dividends received by insurance com-
pany. Dividends received by an eligible
member insurance company, taxed under
either section 801 or section 831, from
another eligible member of the group are
treated for Federal income tax purposes as
if the group did not file a consolidated re-
turn. See sections 818(e)(2) and 805(a)(4)
for rules regarding a member taxed under
section 801, and see sections 832(g) and
832(b)(5)(B) through (E) for rules regard-
ing a member taxed under section 831.
(ii) Other dividends. Dividends re-
ceived from a life company member of
the group that are not subject to paragraph
(d)(5)(i) of this section are not included in
gross income of the distributee member.
See section 1504(c)(2)(B)(i). If the dis-
tributee corporation is a nonlife insurance
company subject to tax under section 831,
the rules of section 832(b)(5)(E) apply.
* * * * *
(7) * * *
(ii) Any taxes described in §1.1502-2
(other than in §1.1502-2(a)(1), (a)(6), and
(a)(7)).
* * * * *
(f) * * *
(2) * * *
(iii) Carrybacks. The portion of the
nonlife consolidated net operating loss
for the nonlife subgroup described in
paragraph (f)(2)(vi) of this section, if any,
that is eligible to be carried back to prior
taxable years under §1.1502-21 is carried
back to the appropriate years (whether
consolidated or separate) before the non-
life consolidated net operating loss may
be used as a nonlife subgroup loss under
paragraphs (e)(2) and (h) of this section
to set off consolidated LICTI in the year
the loss arose. The election under section
172(b)(3) to relinquish the entire carry-
back period for the net operating loss of
the nonlife subgroup may be made by the
agent for the group within the meaning of
§1.1502-77.
(v) * * * For limitations on the use of
nonlife carryovers to offset nonlife con-
solidated taxable income or consolidated
LICTI, see §1.1502-21(a).
(vi) Portion of nonlife consolidated net
operating loss that is carried back to prior
taxable years. The portion of the nonlife
consolidated net operating loss that (ab-
sent an election to waive carrybacks) is
carried back to the two preceding taxable
years is the sum of the nonlife subgroup’s
farming loss (within the meaning of sec-
tion 172(B)(1)(b)(ii)) and the amount of
the subgroup’s net operating loss that is
attributable to nonlife insurance compa-
nies (as determined under §1.1502-21).
For rules governing the absorption of net
operating loss carrybacks, including lim-
itations on the amount of net operating
loss carrybacks that may be absorbed in
prior taxable years, see §1.1502-21(b).
(vii) Example. P, a holding company
that is not an insurance company, owns
all of the stock of S, a nonlife insurance
company, and L1, a life insurance com-
pany. L1 owns all of the stock of L2, a
life insurance company. Both L1 and
L2 satisfy the eligibility requirements of
§1.1502-47(b)(11). Each corporation uses
the calendar year as its taxable year and
none of P, S, L1 or L2 are engaged in a
farming business (within the meaning of
section 263A(e)(4)). For 2021, the group
first files a consolidated return for which
the election under section 1504(c)(2) is
effective. P and S filed consolidated re-
turns for 2019 and 2020. In 2021, the P-S
group sustains a nonlife consolidated net
operating loss that is attributable entirely
to S (see §1.1502-21(b)). The election in
2020 under section 1502(c)(2) does not
result under paragraph (d)(1) of this sec-
tion in the creation of a new group or the
termination of the P-S group. The loss is
carried back to the consolidated return
years 2019 and 2020 of P and S. Pursuant
to §1.1502-21(b), the loss may be used to
offset S’s income in 2019 and 2020 with-
out limitation, and the loss may be used
to offset P’s income in those years, sub-
ject to the limitation in section 172(a) (see
§1.1502-21(b)). The portion of the loss
not absorbed in 2019 and 2020 may serve
as a nonlife subgroup loss in 2021 that
may set off the consolidated LICTI of L1
and L2 under paragraphs (e)(2) and (h) of
this section.
(3) * * *
(ii) Additional principles. In applying
§1.1502-22 to nonlife consolidated net
capital loss carryovers and carrybacks,
the principles set forth in paragraph (f)(2)
(iii) through (v) of this section for apply-
ing §1.1502-21 to nonlife consolidated net
operating loss carryovers and carrybacks
also apply, without regard to the limitation
in paragraph (f)(2)(vi) of this section.
* * * * *
(g) Consolidated LICTI—(1) General
rule. Consolidated LICTI is the consoli-

July 20, 2020 224 Bulletin No. 2020–30
dated taxable income of the life subgroup,
computed under §1.1502-11 as modified
by this paragraph (g).
(2) Life consolidated net operating
loss deduction—(i) In general. In apply-
ing §1.1502-21, the rules in this para-
graph (g)(2) apply in determining for the
life subgroup the life net operating loss
and the portion of the life net operating
loss carryovers and carrybacks to the tax-
able year.
(ii) Life CNOL. The life consolidated
net operating loss is determined under
§1.1502-21(e) by treating the life sub-
group as the group.
(iii) Carrybacks—(A) General rule.
The portion of the life consolidated net
operating loss for the life subgroup, if
any, that is eligible to be carried back
under §1.1502-21 is carried back to the
appropriate years (whether consolidated
or separate) before the life consolidat-
ed net operating loss may be used as a
life subgroup loss under paragraphs (e)
(1) and (j) of this section to set off non-
life consolidated taxable income in the
year the loss arose. The election under
section 172(b)(3) to relinquish the entire
carryback period for the consolidated net
operating loss of the life subgroup may
be made by the common parent of the
group.
(B) Special rule for life consolidat-
ed net operating losses arising in 2018,
2019, or 2020. If a life consolidated net
operating loss arising in a taxable year
beginning after December 31, 2017, and
before January 1, 2021, is carried back
to a life insurance company taxable year
beginning before January 1, 2018, then
such life consolidated net operating loss
is treated as an operations loss carryback
(within the meaning of section 810, as in
effect prior to its repeal) of such company
to such taxable year.
(iv) Subgroup rule. In determining the
portion of the life consolidated net oper-
ating loss that is absorbed when the loss
is carried back to a consolidated return
year, §1.1502-21 is applied by treating
the life subgroup as the group. Therefore,
the absorption is determined without tak-
ing into account any nonlife subgroup
losses that were previously reported on
a consolidated return as setting off life
consolidated taxable income for the year
to which the life subgroup loss is carried
back.
(v) Carryovers. The portion of the life
consolidated net operating loss that is not
absorbed in a prior year as a carryback, or
as a life subgroup loss that set off nonlife
consolidated taxable income for the year
the loss arose, constitutes a life carryover
under this paragraph (g)(2) to reduce con-
solidated LICTI before that portion may
constitute a life subgroup loss that sets off
nonlife consolidated taxable income for
that particular year. For limitations on the
use of nonlife carryovers to offset nonlife
consolidated taxable income or consoli-
dated LICTI, see §1.1502-21(b).
(3) Life consolidated capital gain net
income or loss—(i) [Reserved]
* * * * *
(h) * * *
(2) * * *
(ii) * * * Additionally, the amount of
consolidated LICTI that may be offset by
nonlife consolidated net operating loss
carryovers may be subject to limitation
(see section 172 and §1.1502-21(a)).
* * * * *
(3) * * *
(iv) * * * The amount of consolidated
LICTI that may be offset by nonlife con-
solidated net operating loss carryovers
may be subject to limitation (see section
172 and §1.1502-21(a)).
* * * * *
(4) Examples. The following examples
illustrate the principles of this paragraph
(h). In the examples, L indicates a life
company, S is a nonlife insurance compa-
ny, another letter indicates a nonlife com-
pany that is not an insurance company, no
company has farming losses (within the
meaning of section 172(b)(1)(B)), and
each corporation uses the calendar year as
its taxable year.
* * * * *
(ii) Example 2. (A) The facts are the same as in
paragraph (h)(4)(i) of this section, except that, for
2021, S’s separate net operating loss is $200. Assume
further that L’s consolidated LICTI is $200. Under
paragraph (h)(3)(vi) of this section, the offsettable
nonlife consolidated net operating loss is $100 (the
nonlife consolidated net operating loss computed
under paragraph (f)(2)(ii) of this section ($200), re-
duced by the separate net operating loss of I ($100)).
The offsettable nonlife consolidated net operating
loss that may be set off against consolidated LICTI in
2021 is $35 (35 percent of the lesser of the offsetta-
ble $100 or consolidated LICTI of $200). See section
1503(c)(1) and paragraph (h)(3)(x) of this section. S
carries over a loss of $65, and I carries over a loss
of $100, to 2022 under paragraph (f)(2) of this sec-
tion to be used against nonlife consolidated taxable
income (consolidated net operating loss ($200) less
amount used in 2020 ($35). Under paragraph (h)(2)
(ii) of this section, the offsettable nonlife consolidat-
ed net operating loss that may be carried to 2022 is
$65 ($100 minus $35). The facts and results are sum-
marized in the following table.
Table 1 to paragraph (h)(4)(ii)(A)
(Dollars omitted)
FactsOffsettableLimitUnused Loss
(a)(b)(c)(d)
1P100
2S(200)(100)(65)
3I(100)(100)
4Nonlife Subgroup(200)(100)(100)(165)
5L200200
635% of lower of line 4(c) or 5(c)35
7Unused offsettable loss(65)

Bulletin No. 2020–30 225 July 20, 2020
(B) Accordingly, under paragraph (e)
of this section, consolidated taxable in-
come is $165 (line 5(a) minus line 6(c)).
(iii) Example 3. The facts are the same as in
paragraph (h)(4)(ii) of this section, with the follow-
ing additions for 2022. The nonlife subgroup has
nonlife consolidated taxable income of $50 (all of
which is attributable to I) before the nonlife consol-
idated net operating loss deduction under paragraph
(f)(2) of this section. Consolidated LICTI is $100.
Under paragraph (f)(2) of this section, $50 of the
nonlife consolidated net operating loss carryover
($165) is used in 2022 and, under paragraph (h)
(3)(vi) and (vii) of this section, the portion used in
2021 is attributable to I, the ineligible nonlife mem-
ber. Accordingly, the offsettable nonlife consolidat-
ed net operating loss from 2021 under paragraph (h)
(3)(ii) of this section is $65, the unused loss from
2020. The offsettable nonlife consolidated net oper-
ating loss in 2022 is $22.75 (35 percent of the lesser
of the offsettable loss of $65 or consolidated LIC-
TI of $100). Accordingly, under paragraph (e) of
this section, consolidated taxable income is $77.25
(consolidated LICTI of $100 minus the offsettable
loss of $22.75).
* * * * *
(j) * * *
(3) Examples. The following examples
illustrate the principles of this paragraph
(j). In the examples, L indicates a life
company, S is a nonlife insurance compa-
ny, another letter indicates a nonlife com-
pany that is not an insurance company, no
company has farming losses (within the
meaning of section 172(b)(1)(B)), and
each corporation uses the calendar year as
its taxable year.
(i) Example 1. P, S, L1 and L2 constitute a group
that elects under section 1504(c)(2) to file a consoli-
dated return for 2021. In 2021, the nonlife subgroup
consolidated taxable income is $100 and there is $20
of nonlife consolidated net capital loss that cannot
be carried back under paragraph (f) of this section
to taxable years (whether consolidated or separate)
preceding 2021. The nonlife subgroup has no carry-
over from years prior to 2021. The life consolidated
net operating loss is $150, which under paragraph (g)
of this section includes life consolidated capital gain
net income of $25. Since life consolidated capital
gain net income is zero for 2021, the nonlife capital
loss offset is zero. However, $100 of life consolidat-
ed net operating loss sets off the $100 nonlife con-
solidated taxable income in 2021. The life subgroup
carries under paragraph (g)(2) of this section to 2022
$50 of the life consolidated net operating loss ($150
minus $100). The $50 carryover will be used in 2022
(subject to the limitation in section 172(a)) against
life subgroup income before it may be used in 2022
to setoff nonlife consolidated taxable income.
(ii) Example 2. The facts are the same as in para-
graph (j)(3)(i) of this section, except that, for 2021,
the nonlife consolidated taxable income is $150 (this
amount is entirely attributable to S and includes non-
life consolidated capital gain net income of $50),
consolidated LICTI is $200, and a life consolidat-
ed net capital loss is $50. Assume that the $50 life
consolidated net capital loss sets off the $50 nonlife
consolidated capital gain net income. Consolidated
taxable income under paragraph (e) of this section
is $300 (nonlife consolidated taxable income ($150)
minus the setoff of the life consolidated net capital
loss ($50), plus consolidated LICTI ($200)).
(iii) Example 3. The facts are the same as in
paragraph (j)(3)(ii) of this section, except that, for
2022, the nonlife consolidated net operating loss is
$150. This entire amount is attributable to S; thus, it
is eligible to be carried back to 2021 against nonlife
consolidated taxable income under paragraph (f)(2)
of this section and §1.1502-21(b). If P, the common
parent, does not elect to relinquish the carryback un-
der section 172(b)(3), the entire $150 will be carried
back, reducing 2021 nonlife consolidated taxable in-
come to zero and nonlife consolidated capital gain
net income to zero. Under paragraph (h)(3)(xii) of
this section, the setoff in 2021 of the nonlife con-
solidated capital gain net income ($50) by the life
consolidated net capital loss ($50) is restored. Ac-
cordingly, the 2021 life consolidated net capital loss
may be carried over by the life subgroup to 2022.
Under paragraph (e) of this section, after the carry-
back, consolidated taxable income for 2021 is $200
(nonlife consolidated taxable income ($0) plus con-
solidated LICTI ($200)).
(iv) Example 4. The facts are the same as in para-
graph (j)(3)(iii) of this section, except that P elects
under section 172(b)(3)to relinquish the carryback
of $150 arising in 2022. The setoff in Example 2 is
not restored. However, the offsettable nonlife con-
solidated net operating loss for 2022 (or that may be
carried over from 2022) is zero. See paragraph (h)(3)
(viii) of this section. Nevertheless, the $150 nonlife
consolidated net operating loss may be carried over
to be used by the nonlife group.
(v) Example 5. P owns all of the stock of S1 and
of L1. On January 1, 2017, L1 purchases all of the
stock of L2. For 2021, the group elects under section
1504(c)(2) to file a consolidated return. For 2021,
L1 is an eligible corporation under paragraph (c)
(11) of this section but L2 is ineligible. Thus, L1 but
not L2 is a member for 2021. For 2021, L2 sustains
a net operating loss, which cannot be carried back
(see section 172(b)). For 2021, L2 is treated under
paragraph (d)(6) of this section as a member of a
controlled group of corporations under section 1563
with P, S, and L1. For 2022, L2 is eligible and is
included on the group’s consolidated return. L2’s net
operating loss for 2021 that may be carried to 2022 is
not treated under paragraph (b)(10) of this section as
having been sustained in a separate return limitation
year for purposes of computing consolidated LICTI
of the L1-L2 life subgroup for 2022. Furthermore,
the portion of L2’s net operating loss not used under
paragraph (g)(2) of this section against life subgroup
income in 2022 may be included in offsettable life
consolidated net operating loss under paragraph (j)
(2) and (h)(3)(i) of this section that reduces in 2022
nonlife consolidated taxable income (subject to the
limitation in section 172(a)) because L2’s loss in
2021 was not sustained in a separate return limitation
year under paragraph (j)(2) and (h)(3)(ix)(A) of this
section or in a separate return year (2021) when an
election was not in effect under section 1504(c)(2) or
section 243(b)(2).
* * * * *
(n) * * *
(4) The rules of paragraphs (a)(2)(i),
(a)(2)(ii), (b)(1) through (b)(4), (b)(9), (b)
(10), (b)(12), (b)(13)(ii), (d)(5)(i), (d)(5)
(ii), (d)(7)(ii), (f)(2)(iii), (f)(2)(vi), (f)(2)
(vii), (f)(3)(ii), (g), (h)(4)(ii), (h)(4)(iii),
and (j)(3) of this section apply to taxable
years beginning after [EFFECTIVE DA-
TEE OF FINAL RULE].
Douglas W. O’Donnell
Acting Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on July
2, 2020, 4:15 p.m., and published in the issue of the
Federal Register for July 8, 2020, 85 F.R. 40927)

Bulletin No. 2020–30 i July 20, 2020
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 pub-
lished 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 ap-
plied 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 be-
ing made clear because the language has
caused, or may cause, some confusion. It
is not used where a position in a prior rul-
ing is being changed.
Distinguished describes a situation
where a ruling mentions a previously pub-
lished 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 pub-
lished ruling that is not considered deter-
minative 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 sub-
stance 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 previous-
ly 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 rul-
ings 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 cas-
es in litigation, or the outcome of a Ser-
vice 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.
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.

July 20, 2020 ii Bulletin No. 2020–30
Numerical Finding List
1
Bulletin 2020–30
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
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
Revenue Procedures:
2020-16, 2020-27 I.R.B. 10
2020-31, 2020-27 I.R.B. 12
2020-35, 2020-29 I.R.B. 82
Revenue Rulings:
2020-14, 2020-28 I.R.B. 33
Treasury Decisions:
9899, 2020-29 I.R.B. 62
9900, 2020-30 I.R.B. 143
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2018–27 through 2018–52 is in Internal Revenue Bulletin
2018–52, dated December 27, 2018.

Bulletin No. 2020–30 iii July 20, 2020
Finding List of Current Actions on
Previously Published Items
1
Bulletin 2020–30
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2018–27 through 2018–52 is in Internal Revenue Bulletin
2018–52, dated December 27, 2018.

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