Internal Revenue Bulletin 2020-53 (PDF rendition): IRS Notices

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Bulletin No. 2020–53
December 28, 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.
ADMINISTRATIVE
REV. PROC. 2020-55, page 1811.
General Rules and Specifications for Substitute Forms and
Schedules
This procedure provides guidelines and general require-
ments for the development, printing, and approval of the
2020 substitute tax forms. This procedure will be repro-
duced as the next revision of Publication 1167. Rev. Proc.
2019-35 is superseded.
ADMINISTRATIVE, INCOME TAX
NOTICE 2020-88, page 1795.
Round 3 of Section 48A Phase III Program under the Quali-
fying Advanced Coal Project Program. This notice updates
and amplifies the procedures for the allocation of credits
under the qualifying advanced coal project program of §
48A of the Internal Revenue Code by announcing the im-
mediate beginning of the 2020-2021 reallocation round
(“Round 3”) of the § 48A Phase III program.
REV. PROC. 2020-54, page 1806.
This revenue procedure will update Rev. Proc. 2019-42,
2019-49 I.R.B. 1298, and identifies circumstances under
which the disclosure on a taxpayer’s income tax return
with respect to an item or position is adequate for the
purpose of reducing the understatement of income tax un-
der section 6662(d) of the Internal Revenue Code (relating
to the substantial understatement aspect of the accura-
cy-related penalty), and for the purpose of avoiding the
tax return preparer penalty under section 6694(a) (relating
to understatements due to unreasonable positions) with
respect to income tax returns.
This revenue procedure will apply to any income tax
return filed on 2020 tax forms for a taxable year beginning
in 2020, and to any income tax return filed in 2021 on
2020 tax forms for short taxable years beginning in 2021.
EMPLOYEE PLANS
NOTICE 2020-86, page 1786.
This notice provides guidance with respect to sections
102 and 103 of the Setting Every Community Up for Re-
tirement Enhancement Act of 2019.
NOTICE 2020-87, page 1792.
This notice sets forth updates on the corporate bond
monthly yield curve, the corresponding spot segment
rates for December 2020 used under § 417(e)(3)(D), the
24-month average segment rates applicable for Decem-
ber 2020, and the 30-year Treasury rates, as reflected by
the application of § 430(h)(2)(C)(iv).
INCOME TAX
Notice 2020-78, page 1785.
The notice provides transition relief related to the work op-
portunity credit by giving employers additional time to submit
a certification request to a Designated Local Agency for the
targeted groups described in section 51(d)(5) and (7) of the
Internal Revenue Code.
Finding Lists begin on page ii.

T.D. 9921, page 1767.
These final regulations provide guidance on the sourcing of in-
come from certain sales of personal property, including inven-
tory, under section 863 of the Internal Revenue Code (“Code”),
which was amended by the Tax Cuts and Jobs Act, Pub. L.
No. 155-97 (2017) and also under section 865 of the Code.
The final regulations also modify certain rules for determining
whether foreign source income is effectively connected with
the conduct of a trade or business within the United States
under section 864 of the Code. The final regulations replace
previously issued proposed regulations and provide guidance
on determining the source of income from sales of inventory
produced within the United States and sold without the United
States or vice versa and new rules for determining the source
of income from sales of personal property by nonresidents
that are attributable to an office or other fixed place of busi-
ness that the nonresident maintains in the United States. Final-
ly, the final regulations provide rules, pursuant to section 1502
of the Code, for the determination of source of income from
sales of personal property in a consolidated group.

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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
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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.
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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.
December 28, 2020 Bulletin No. 2020–53

Part I
26 CFR 1.863-0, 1.863-0A, 1.863-1, 1.863-2, 1.863-
3, 1.863-8, 1.864-5, 1.864-6, 1.865-3, 1.937-2,
1.937-3, 1.1502-13
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1
Source of Income from
Certain Sales of Personal
Property
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains final
regulations modifying the rules for deter-
mining the source of income from sales
of inventory produced within the United
States and sold without the United States or
vice versa. These final regulations also con-
tain new rules for determining the source of
income from sales of personal property (in-
cluding inventory) by nonresidents that are
attributable to an office or other fixed place
of business that the nonresident maintains
in the United States. Finally, these final
regulations modify certain rules for deter-
mining whether foreign source income is
effectively connected with the conduct of
a trade or business within the United States.
DATES: Effective Date: These final regula-
tions are effective on December 11, 2020.
Applicability Dates: For dates of applica-
bility, see §§1.863-1(f), 1.863-2(c), 1.863-
3(g), 1.863-8(h), 1.864-5(e), 1.864-6(c)
(4), and 1.865-3(g).
FOR FURTHER INFORMATION CON-
TACT: Brad McCormack at (202) 317-
6911 (not a toll free number).
SUPPLEMENTARY INFORMATION:
Background
The Tax Cuts and Jobs Act, Public Law
115-97, 131 Stat. 2054, 2208 (2017) (the
“Act”), enacted on December 22, 2017,
amended section 863(b) of the Internal
Revenue Code (“Code”). On December
30, 2019, the Department of the Treasury
(“Treasury Department”) and the IRS
published proposed regulations (REG-
100956-19) under sections 863, 864, 865,
937, and 1502 in the Federal Register
(84 FR 71836) (the “proposed regula-
tions”). A public hearing on the proposed
regulations was held on June 3, 2020. All
written comments received in response to
the proposed regulations are available at
https://www.regulations.gov or upon re-
quest. Terms used but not defined in this
preamble have the meaning provided in
these final regulations.
Summary of Comments and
Explanation of Revisions
I. Overview
The final regulations retain the over-
all approach of the proposed regulations,
with certain revisions. This Summary of
Comments and Explanation of Revisions
section discusses those revisions as well
as comments received in response to the
solicitation of comments in the notice of
proposed rulemaking. Comments outside
the scope of this rulemaking are general-
ly not addressed but may be considered in
connection with future guidance projects.
II. Comments on and Revisions to
Proposed §1.863-1 — Allocation of
Gross Income Under Section 863(a) and
Proposed §1.863-3 — Allocation and
Apportionment of Income from Certain
Sales of Inventory
The Act amended section 863 of the
Code, which provides special sourc-
ing rules for determining the source of
income, including income partly from
within and partly from without the Unit-
ed States. Specifically, the Act amended
section 863(b) to allocate or apportion
income from the sale or exchange of in-
ventory property produced (in whole or
in part) by a taxpayer within the United
States and sold or exchanged without the
United States or produced (in whole or
in part) by the taxpayer without the Unit-
ed States and sold or exchanged within
the United States (collectively, “Section
863(b)(2) Sales”) solely on the basis of
production activities with respect to that
inventory. Before the Act, section 863(b)
provided that income from Section 863(b)
(2) Sales would be treated as derived part-
ly from sources within and partly from
sources without the United States without
providing the basis for such allocation or
apportionment. Consistent with the Act’s
changes to section 863(b), the proposed
regulations amended §1.863-3 in order to
properly allocate or apportion gross in-
come from Section 863(b)(2) Sales based
solely on production activity.
Under §1.863-3(c)(1)(ii)(A) (which
has been redesignated in the final regu-
lations as §1.863-3(c)(2)(i)), where the
taxpayer’s production assets are located
both within and without the United States,
the amount of income from sources with-
out the United States is determined by
multiplying all the income attributable to
the taxpayer’s production activities by a
fraction, the numerator of which is the av-
erage adjusted basis of production assets
that are located without the United States
and the denominator of which is the aver-
age adjusted basis of all the production as-
sets located within and without the United
States.
For purposes of applying this formula,
the adjusted basis of production assets is
determined under section 1011, which is
adjusted under section 1016 for depreci-
ation deductions allowed. The Act also
amended section 168(k) to allow an addi-
tional first-year depreciation deduction of
100 percent of the basis of certain prop-
erty placed in service after September 27,
2017, and before January 1, 2023. There-
fore, certain new and used production as-
sets placed in service and used predomi-
nantly within the United States during this
period may have an adjusted basis of zero.
However, production assets either placed
in service or used predominantly without
the United States, or both, do not quali-
fy for this accelerated depreciation and
must be depreciated using the straight-line
method under the alternative depreciation
system (“ADS”) of section 168(g)(2). In
light of the Act’s change to section 168(k)
to allow accelerated depreciation in some
Bulletin No. 2020–53 1767 December 28, 2020

circumstances, the proposed regulations
provided a new rule for computing the ad-
justed basis of production assets for pur-
poses of applying the allocation formula
in §1.863-3.
A. Income attributable to sales activity
Section 1.863-3, as in effect before this
Treasury Decision, provided rules and
corresponding methods for allocating or
apportioning gross income from Section
863(b)(2) Sales between production ac-
tivity and sales activity. To implement the
changes to section 863(b) under the Act, the
proposed regulations proposed removing
§1.863-3(c)(2) which allocates and appor-
tions income attributable to sales activity.
One comment argued that removing
§1.863-3(c)(2) could lead to double tax-
ation when a foreign jurisdiction impos-
es taxation on the sales activity. The Act
amended section 863(b) to source income
from the sale by a taxpayer of inventory
produced by that taxpayer based only on
production activity. Under the Code, sales
activity is no longer a relevant factor for
allocating and apportioning such income.
Therefore, the final regulations remove
§1.863-3(c)(2). But see part V of this
Summary of Comments and Explanation
of Revisions section for a discussion of
the interaction with income tax treaties.
Another comment suggested that two
aspects of §1.863-3(c)(2) have continued
relevance even after the Act’s changes to
section 863(b)(2). First, §1.863-3(c)(2) has
a special rule modifying the rule in §1.861-
7(c) that generally sources income from
the sale of personal property based on the
place of sale. Under §1.861-7(c), a sale is
generally treated as consummated in the
place where the rights, title, and interest of
the seller in the property are transferred to
the buyer. However, if a taxpayer wholly
produces inventory in the United States
and sells it for use, consumption, or dis-
position in the United States, §1.863-3(c)
(2) presumes that the place of sale is in the
United States, even if title passes outside
the United States. The comment recom-
mended the final regulations include a sim-
ilar rule and expand it to inventory wholly
or partly produced in the United States that
is acquired by a related party and resold
for use, consumption, or disposition in the
United States with title passing outside the
United States. The comment observed that
in the absence of such a rule, the sale by
the related party would generate foreign
source income, notwithstanding the fact
that the inventory was produced wholly or
partly in the United States and ultimately
sold for use, consumption, or disposition in
the United States.
The final regulations do not adopt this
comment. The place of sale rule of §1.861-
7(c) already contains a broad anti-abuse
rule that would apply to any sales trans-
actions “arranged in a particular manner
for the primary purpose of tax avoidance,”
which may cover certain related party ar-
rangements about which the comment is
concerned. Section 482 also applies to
require that compensation paid between
related parties is consistent with the arm’s
length standard and will take into account
the business functions and assets of, and
risks assumed by, the related party inter-
mediary. The Treasury Department and
the IRS continue to study issues related
to the distribution among related entities
of the business functions, assets, and risks
that generate business income, including
sales income, and may address these is-
sues in future guidance, particularly with
respect to the sourcing of income from
certain digital transactions.
Second, the comment observed that
§1.863-3(c)(2) treats inventory as whol-
ly produced in the United States for pur-
poses of determining whether the place
of sale is presumed to be in the United
States if only minor assembly, packaging,
repackaging, or labeling occurs outside
the United States. The comment recom-
mended including this rule as part of pro-
posed §1.863-3(c)(1)(i). The final regula-
tions adopt this comment in §1.863-3(c)
(1)(i) by incorporating the “principles of
§1.954-3(a)(4)” (other than §1.954-3(a)
(4)(iv)). Section 1.954-3(a)(4) provides
rules for determining when a corporation
has manufactured, produced, or construct-
ed personal property. Under §1.954-3(a)
(4)(iii), packaging, repackaging, label-
ing, or minor assembly operations do not
constitute the manufacture, production, or
construction of property. Accordingly, un-
der the final regulations, these principles
apply for purposes of determining wheth-
er a taxpayer’s activities constitute pro-
duction activity under §1.863-3(c)(1)(i)
as well. See part II.B of this Summary of
Comments and Explanation of Revisions
section.
B. Definition of production activities
Proposed §1.863-1(b)(2) provided the
rule for sourcing gross receipts from the
sale of natural resources where the tax-
payer performs production activities in
addition to its ownership of a farm, mine,
oil or gas well, other natural deposit, or
uncut timber. Section 1.863-1(b)(3)(ii)
defines such “additional production ac-
tivities” by reference to the “principles of
§1.954-3(a)(4).”
Under section 951(a)(1)(A), a United
States shareholder of a controlled foreign
corporation (“CFC”) includes in gross in-
come its pro rata share of the CFC’s subpart
F income for the CFC’s taxable year which
ends with or within the taxable year of the
shareholder. Section 952(a)(2) defines the
term subpart F income to include foreign
base company income. Section 954(a)
(2) defines foreign base company income
to include foreign base company sales
income (“FBCSI”) for the taxable year.
Section 954(d)(1) defines FBCSI to mean
income derived by a CFC in connection
with certain related party transactions. Sec-
tion 1.954-3(a)(4) provides an exception to
FBCSI when a CFC manufactures prop-
erty that it sells. One comment supported
defining “additional production activities”
by reference to “the principles of §1.954-
3(a)(4),” as described in §1.863-1(b)(3)(ii),
and requested that §§1.863-3 and 1.865-3
include a similar cross reference.
The final regulations adopt this recom-
mendation, in part. Specifically, under the
final regulations, §§1.863-3 and 1.865-3
incorporate the principles of §1.954-3(a)
(4), with the exception of the rules re-
garding a “substantial contribution to the
manufacturing of personal property” un-
der §1.954-3(a)(4)(iv). See §§1.863-3(c)
(1)(i) and 1.865-3(d)(2). The final regu-
lations also modify §1.863-1(b)(3)(ii) to
incorporate the principles of §1.954-3(a)
(4), other than the “substantial contri-
bution to the manufacturing of personal
property” under §1.954-3(a)(4)(iv).
The
substantial contribution rules were added
to §1.954-3(a)(4) in T.D. 9438 (December
29, 2008) after the adoption of §1.863-
1(b)(3)(ii) in T.D. 8687 (November 27,
1996). While the Treasury Department
December 28, 2020 1768 Bulletin No. 2020–53

Bulletin No. 2020–53 1769 December 28, 2020
and the IRS agree with the comment
that the principles of §1.954-3(a)(4) may
generally be helpful in determining the
location of production activity for sourc-
ing purposes, the substantial contribution
rules of §1.954-3(a)(4)(iv) are concerned
with whether there is production activity
and do not address the geographic loca-
tion of that production activity, which is
relevant for sourcing under sections 861,
863, and 865. Additionally, the substantial
contribution rules are premised on treating
a corporation as engaged in production
activities even if it is not engaged in the
direct use of production assets (other than
oversight assets), while §1.863-3 focuses
on sourcing income based on the location
of a corporation’s production assets that
are used for production activities. See
§1.863-3(c)(1)(ii) (which has been redes-
ignated in the final regulations as §1.863-
3(c)(2)). In this regard, there is not a clear
metric for quantifying production arising
from substantial contribution activities,
even if such activities are properly iden-
tified, in order to assign production activi-
ties to a particular geographic location for
purposes of determining the place of pro-
duction under sections 861, 863, and 865.
Therefore, the final regulations provide
that the principles of §1.954-3(a)(4), other
than the substantial contribution rules in
§1.954-3(a)(4)(iv), apply in determining
whether production activities exist.
C. Measuring adjusted basis of
production assets
For inventory produced both within
and without the United States, the pro-
posed regulations continued to allocate or
apportion the gross income between U.S.
and foreign sources based on the formu-
la in §1.863-3(c)(1)(ii)(A) (redesignated
as proposed §1.863-3(c)(2)(i)). This for-
mula determined the amount of foreign
source income by multiplying the total
gross income by a fraction, the numerator
of which is the average adjusted basis of
production assets located outside the Unit-
ed States and the denominator of which is
the average adjusted basis of all produc-
tion assets within and without the United
States. The remaining gross income is
from U.S. sources.
In light of the Act’s changes to section
168(k), proposed §1.863-3(c)(2)(ii) mea-
sured the adjusted basis of the U.S. pro-
duction assets for purposes of this formula
based on the alternative depreciation sys-
tem (“ADS”) of section 168(g)(2). The pre-
amble to the proposed regulations observed
that such rule allows the basis of both U.S.
and non-U.S. production assets to be mea-
sured consistently on a straight-line method
over the same recovery period, and request-
ed comments on using ADS for this purpose
or alternatives for measuring relative U.S.
and non-U.S. production assets.
One comment suggested that some tax-
payers such as partnerships and S corpora-
tions would face administrative burdens if
they had to maintain separate ADS books
that they may not otherwise maintain if
section 951A(d)(3) or 250(b)(2)(B) do
not apply to them. The comment observed
that the Act, in contrast to those other sec-
tions, does not mandate the use of ADS in
the section 863(b) context. The comment
requested that the final regulations main-
tain the existing rule of §1.863-3(c)(1)
(ii)(B) measuring the basis under section
1011 (as adjusted by section 1016), either
as the principal rule or, alternatively, at the
election of the taxpayer.
The final regulations do not adopt this
comment. The Treasury Department and
the IRS have determined that the use of
ADS for this purpose will prevent the Act’s
modifications to section 168(k) (resulting
in accelerated depreciation) from inappro-
priately skewing the apportionment formu-
la under §1.863-3(c)(2)(i) in favor of for-
eign source income. While the Act does not
mandate the use of ADS for this purpose,
the Treasury Department and the IRS have
authority to mandate the use of ADS under
sections 863(a) and 7805 and have deter-
mined that the use of ADS is necessary to
accurately measure the place of production
using adjusted basis, as other basis mea-
surements might inappropriately inflate
foreign production activities.
III. Comments on and Revisions to
Proposed §1.865-3 — Source of Gross
Income from Sales of Personal Property
(Including Inventory Property) by a
Nonresident Attributable to an Office
or Other Fixed Place of Business in the
United States
Section 865 provides rules for sourcing
income from sales of personal property.
Section 865(e)(2) applies with respect to
all sales of personal property (including
inventory) by a nonresident, as that term
is defined in section 865(g)(1)(B), attrib-
utable to an office or other fixed place
of business in the United States. Section
865(e)(2)(A) generally provides that in-
come from any sale of personal property
attributable to such an office or other fixed
place of business is sourced in the United
States. An exception is provided in sec-
tion 865(e)(2)(B) for a sale of inventory
for use, disposition, or consumption out-
side the United States if a foreign office of
the nonresident ‘‘materially participated’’
in the sale. Section 865(e)(3) provides that
the ‘‘principles of section 864(c)(5) shall
apply’’ to determine whether a nonresi-
dent has an office or other fixed place of
business and whether a sale is attributable
to such office or other fixed place of busi-
ness. Where applicable, section 865(e)(2)
applies ‘‘[n]otwithstanding any other pro-
visions’’ of subchapter N, part I, including
sections 863(b), 861(a)(6), and 862(a)(6).
The proposed regulations under §1.865-3
clarified the application of the principles
of section 864(c)(5) in the context of sec-
tion 865(e)(2) and provided that sales of
inventory property produced outside the
United States and sold through an office
maintained by the nonresident in the Unit-
ed States must be sourced in the United
States in part.
Proposed §1.865-3(e) also included a
cross-reference to the rules for allocating
and apportioning expenses to gross in-
come effectively connected with the con-
duct of a trade or business in the United
States in §§1.882-4 and 1.882-5. Since
those regulations apply only to foreign
corporations, one comment requested that
the final regulations also refer to §1.873-1
to cover nonresident alien taxpayers sub-
ject to proposed §1.865-3. In response to
this comment, the final regulations broad-
en the cross-references to include sections
882(c)(1) and 873(a) for purposes of al-
locating and apportioning expenses. See
§1.865-3(e).
The final regulations also reorder and
revise parts of §1.865-3 in a non-substan-
tive manner solely for purposes of improv-
ing clarity and ease of application. The re-
vision also helps to clarify that §1.865-3
applies only if a nonresident maintains an
office or other fixed place of business in

December 28, 2020 1770 Bulletin No. 2020–53
the United States to which a sale of per-
sonal property is attributable. Otherwise,
the source of the income, gain, or loss
from the sale will be determined under
other applicable provisions of section 865,
such as section 865(b) through (d).
The final regulations also retain, with
certain modifications, the rules for deter-
mining the portion of gross income from
sales and production activities under
§1.865-3(d). Under the proposed regula-
tions, the “50/50 method,” described in
§1.865-3(d)(2)(i), was the default method
because it was “an appropriate and admin-
istrable way” to apply section 865(e)(2),
but the proposed regulations also allowed
nonresidents to elect a books and records
method that would “more precisely” re-
flect their gross income from both sales
and production activities, if any, in the
United States, provided the nonresidents
met certain requirements for maintaining
their books of account under proposed
§1.865-3(d)(2)(ii)(B)(1) through (3). See
84 FR 71836, 71843. Under the final reg-
ulations, the 50/50 method continues to be
the default method and taxpayers contin-
ue to be permitted to elect the books and
records method. However, the Treasury
Department and the IRS have determined
that, where taxpayers have demonstrated
the ability to use their books of account
to determine their U.S. source gross in-
come under the books and records meth-
od, a limitation is appropriate to prevent
a nonresident from returning to the less
precise 50/50 method solely to obtain a
better tax result. In addition, the Treasury
Department and the IRS have determined
that revising the election to provide that it
remains in effect until revoked would re-
duce the risk to taxpayers of inadvertently
failing to include the election with their
Federal income tax return. Accordingly,
under the final regulations, an election
to apply the books and records method
continues until revoked and may not be
revoked, without the consent of the Com-
missioner, for any taxable year beginning
within 48 months of the end of the taxable
year in which the election was made.
The final regulations also revise
§1.864-5 to clarify the interaction with
section 865(e)(2) and (3) and the prom-
ulgation of §1.865-3. Gross income, gain,
or loss from the sale of personal property
treated as from sources within the United
States under §1.865-3 will generally be
effectively connected with the conduct
of a trade or business in the United States
to the extent provided in section 864(c),
other than section 864(c)(4) or (5). Gross
income, gain, or loss from the sale of per-
sonal property treated as from sources
without the United States under §1.865-3
is not described in §1.864-5(b) and thus
will generally not be effectively connect-
ed with the conduct of a trade or business
in the United States.
The rules of §§1.864-5, 1.864-6, and
1.864-7 continue to apply, however, in de-
termining whether foreign source income
of nonresident aliens and foreign corpora-
tions that does not arise from the sale of
personal property described in §1.865-
3(c) is effectively connected with the con-
duct of a trade or business in the United
States. The rules of §§1.864-5, 1.864-6,
and 1.864-7 also continue to apply in de-
termining whether foreign source income
from the sale of inventory by nonresident
aliens, who would be residents under sec-
tion 865(g)(1)(A), is effectively connect-
ed with the conduct of a trade or business
in the United States.
IV. Comments on the Rules for
Determining the Location or Existence of
Production Activity
The proposed regulations did not mod-
ify the rules in §1.863-3 for determining
the location or existence of production
activity for purposes of determining the
sourcing of income derived from the
sale of inventory. Section 1.863-3(c)(1)
(i)(A) (which has been redesignated in
the final regulations as §1.863-3(c)(1)(i))
provides the rule for sourcing of income
where production occurs only within
the United States or only within foreign
countries. That paragraph generally lim-
its the scope of “production activities”
to only “those conducted directly by the
taxpayer.” Similarly, §1.863-3(c)(1)(i)(B)
(which has been redesignated in the final
regulations as §1.863-3(c)(1)(ii)) provides
that production assets are those “owned
directly by the taxpayer that are directly
used by the taxpayer to produce invento-
ry.” Section 1.863-3(c)(1)(ii) (which has
been redesignated in the final regulations
as §1.863-3(c)(2)) provides the rule for
the sourcing of income where production
occurs both within and without the United
States, and, as discussed in part II.C of this
Summary of Comments and Explanation
of Revisions section, allocates gross in-
come based on the relative adjusted basis
of production assets located within and
without the United States, respectively.
The final regulations clarify the de-
termination of the adjusted basis of pro-
duction assets under §1.863-3(c)(1)(ii)
(B) (which has been redesignated in the
final regulations as §1.863-3(c)(2)(ii)(A)).
Under the final regulations, the adjusted
basis of production assets for a taxable
year is determined by averaging the basis
of the assets at the beginning and end of
the year, except in the event that a change
during the year would cause the average
to “materially distort” the calculation for
sourcing of income attributable to produc-
tion activity under §1.863-3(c)(1)(ii)(A)
(which has been redesignated in the final
regulations as §1.863-3(c)(2)(i)). This
clarification uses certain concepts from
§1.861-9(g)(2)(i)(A) to further explain
when a change might “materially distort”
the calculation. For example, the rule ap-
plies when an event such as a late-year
disposition of substantially all the U.S.
production assets of a corporation would
cause a material distortion in the corpora-
tion’s calculation of the split between U.S.
and foreign production activities.
One comment provided a range of
suggestions to modify the rules of pro-
posed §§1.863-3(c) and 1.865-3(d). This
comment suggested that the rules of pro-
posed §§1.863-3(c) and 1.865-3(d) were
adequate, in general, where a taxpayer in-
dependently manufactured its own inven-
tory, but inadequate with respect to other
business models that rely on limited risk
contract manufacturers or where multiple
members of a group each perform only
limited manufacturing functions in vari-
ous jurisdictions. The comment observed
that apportionment of gross income using
the relative adjusted basis of production
assets may not reflect high value-adding
core production and risk management
functions and ownership of production as-
sets by unrelated contract manufacturers.
The comment suggested expanding the
scope of covered production activities and
ownership of production assets to include
activities conducted and assets owned by
related parties and unrelated agents of the

Bulletin No. 2020–53 1771 December 28, 2020
taxpayer. The comment also recommend-
ed that these rules include any activities
that constitute a “substantial contribution”
within the meaning of §1.954-3(a)(4)(iv)
to better conform to the rules under sub-
part F. See part II.B of this Summary of
Comments and Explanation of Revisions
section. In addition, the comment suggest-
ed that §1.863-3 should not allocate and
apportion gross income using only the
relative adjusted basis of production as-
sets located within and without the United
States, and recommended allocation and
apportionment based on other metrics,
such as the location of personnel involved
in the production activities or personnel
costs. The comment suggested that these
modifications could, alternatively, be re-
buttable presumptions that a taxpayer
could overcome by showing that allocat-
ing and apportioning gross income based
on adjusted basis or some other approach
provides a more appropriate result under
the taxpayer’s facts.
Another comment suggested that the
existing allocation and apportionment
rules that rely on the relative adjusted ba-
sis of production assets encourage busi-
nesses to move (or locate additional) pro-
duction assets outside the United States.
Specifically, the comment expressed con-
cern that treating income from the sale of
inventory produced, in whole or in part, in
the United States as U.S. source income
might result in double taxation if the in-
come is also subject to tax in a foreign
jurisdiction, since the U.S. source income
would be excluded from the numerator of
the section 904 limitation, reducing the
section 904 limitation, and potentially
limiting the U.S. taxpayer’s ability to use
its foreign tax credits. The comment re-
quested replacing these rules with a more
comprehensive formula, preferably one
that minimizes the risk of double taxation.
The comment did not suggest an alterna-
tive formula and observed that further leg-
islation may be necessary in this regard.
The Treasury Department and the IRS
appreciate the various concerns presented
by these comments and suggested revi-
sions. The final regulations do not adopt
these comments, but the Treasury Depart-
ment and the IRS may consider these rec-
ommendations as part of a more compre-
hensive review of the sourcing rules for
production activity (for purposes of both
§1.863-3 and §1.865-3) in a future notice
of proposed rulemaking. Additionally,
the anti-abuse rule in §1.863-3(c)(1)(iii)
(which has been redesignated in the final
regulations as §1.863-3(c)(3)) already
applies to make appropriate adjustments
where taxpayers enter into or structure
certain transactions with a principal pur-
pose of reducing U.S. tax liability under
§1.863-3, including by using production
assets owned by a related party. To clarify
the application of this rule, the final regu-
lations provide that the anti-abuse rule ap-
plies to transactions inconsistent with the
purpose of §1.863-3(b) or (c), and adds as
an example that the anti-abuse rule may
cover acquisitions of domestic production
assets by related partnerships (or subsid-
iaries thereof) with a principal purpose of
reducing the transferor’s U.S. tax liability
by treating income from the sale of inven-
tory property as subject to section 862(a)
(6) rather than section 863(b). The Trea-
sury Department and the IRS continue
to request comments regarding potential
approaches to determine the location or
existence of production activity or other
modifications to §1.863-3 that may be ap-
propriate.
V. Comments on Income Tax Treaties
The preamble to the proposed regu-
lations included a statement about how
proposed §1.865-3 interacted with U.S.
income tax treaties under which the busi-
ness profits of foreign treaty residents
may be taxable in the United States only
if the profits are attributable to a perma-
nent establishment in the United States.
The preamble to the proposed regulations
stated, “[w]ith respect to taxpayers enti-
tled to the benefits of an income tax trea-
ty, the amount of profits attributable to a
U.S. permanent establishment will not be
affected by these regulations.” See 84 FR
71836, 71844.
One comment supported the pream
-
ble’s statement and requested that, con-
sistent with the statement in the preamble,
the final regulations not apply to Section
863(b)(2) Sales in a manner that results
in double taxation to U.S. taxpayers en-
gaged in business operations through a
permanent establishment in a treaty juris-
diction, notwithstanding the Act’s change
to section 863(b). The comment also re-
quested that competent authority relief be
provided in this regard. These regulations
do not affect the ability of a taxpayer to
rely on treaty provisions to mitigate or
relieve double taxation, including treaty
provisions that permit a taxpayer to make
a request to the competent authority for
assistance pursuant to a mutual agreement
procedure article of an applicable income
tax treaty.
VI. Comment on Proposed Applicability
Date
The proposed regulations were pro-
posed to apply to taxable years ending
on or after December 23, 2019, although
taxpayers and their related parties could
generally apply the rules in their entirety
for taxable years beginning after Decem-
ber 31, 2017, and ending before Decem-
ber 23, 2019. One comment requested that
the final regulations apply to taxable years
ending after December 31, 2019, because
some taxpayers have consistently relied
on the existing methods of §1.863-3(b)
for many years. The final regulations do
not adopt this comment. Under section
7805(b)(1)(B), a final regulation can apply
to any taxable period ending on or after
the date on which the proposed regulation
to which such final regulation relates was
filed with the Federal Register, which for
these final regulations was December 23,
2019. The final regulations implement the
Act’s statutory change to section 863(b),
which was effective for taxable years
beginning after December 31, 2017. To
provide certainty to taxpayers and avoid a
multiplicity of different interpretations of
the statute, the Treasury Department and
the IRS have determined that it is appro-
priate for the final regulations to apply as
closely as possible to the effective date of
the statutory change.
Applicability Date
The final regulations generally apply to
taxable years ending on or after December
23, 2019. Taxpayers may choose to apply
the final regulations for any taxable year
beginning after December 31, 2017, and
ending before December 23, 2019, pro-
vided that the taxpayer and all persons
that are related to the taxpayer (within the
meaning of section 267 or 707) apply the

December 28, 2020 1772 Bulletin No. 2020–53
final regulations in their entirety and, once
applied, the taxpayer and all persons re-
lated to the taxpayer (within the meaning
of section 267 or 707) continue to apply
the final regulations in their entirety for
all subsequent taxable years. See section
7805(b)(7). Alternatively, taxpayers may
rely on the proposed regulations for any
taxable year beginning after December 31,
2017, and ending on or before September
29, 2020, provided that the taxpayer and
all persons that are related to the taxpayer
(within the meaning of section 267 or 707)
rely on the proposed regulations in their
entirety and provided that the taxpayer
and all persons that are related to the tax-
payer (within the meaning of section 267
or 707) have not applied the final regula-
tions to any preceding year.
Special Analyses
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
of Management and Budget regarding re-
view of tax regulations.
I. Paperwork Reduction Act
The Paperwork Reduction Act of 1995
(44 U.S.C. 3501-3520) (“PRA”) generally
requires that a federal agency obtain the
approval of OMB before collecting in-
formation from the public, whether such
collection of information is mandatory,
voluntary, or required to obtain or retain
a benefit.
The final regulations include a col-
lection of information in §1.865-3(d)(2)
(ii)(B). Section 1.865-3(d)(2)(ii)(B) al-
lows a nonresident, as defined in section
865(g)(1)(B), whose inventory sales are
described in §1.865-3(d)(2) (relating to
inventory produced by the nonresident)
to elect to allocate the profit from such
sales to its U.S. office using a books and
records method under §1.865-3(d)(2)(ii),
rather than using a default “50/50 meth-
od” under §1.865-3(d)(2)(i). If the collec-
tion of information in §1.865-3(d)(2)(ii)
(B) applies to a nonresident, the nonres-
ident must maintain detailed records of
its receipts and expenditures attributable
to its sales and production activities to
support the allocation of its income, gain,
or loss to its sales activities in the United
States under the principles of section 482.
See §1.865-3(d)(2)(ii)(B)(2). The nonres-
ident must also prepare an explanation of
how the allocation was determined. See
§1.865-3(d)(2)(ii)(B)(3). The nonresident
must make an election to apply the books
and records method under §1.865-3(d)(2)
(ii) by attaching a statement to its origi-
nal timely filed Federal income tax return
(including extensions) that it elects to ap-
ply the books and records method under
§1.865-3(d)(2)(ii)(A) and has prepared
the records described in §1.865-3(d)(2)
(ii)(B)(2) and (3). The nonresident must
make available the explanation and re-
cords upon request of the Commissioner,
within 30 days or some other time period
as agreed between the Commissioner and
the nonresident. See §1.865-3(d)(2)(ii)(B)
(3).
The reporting burdens associated with
the collection of information in §1.865-
3(d)(2)(ii)(B) will be reflected in the Form
14029, Paperwork Reduction Act Sub-
mission, that the Treasury Department
and the IRS will submit to OMB for tax
returns in the Forms 1120-F, U.S. Income
Tax Return of a Foreign Corporation, and
Forms 1040-NR, U.S. Nonresident Alien
Income Tax Return. In particular, the re-
porting burden associated with the infor-
mation collection in §1.865-3(d)(2)(ii)(B)
will be included in the burden estimate
for OMB control numbers 1545-0123 and
1545-0074. OMB control number 1545-
0123 represents a total estimated burden
time for all forms and schedules for cor-
porations of 3.344 billion hours and total
estimated monetized costs of $61.558 bil-
lion ($2019). OMB control number 1545-
0074 represents a total estimated burden
time, including all other related forms and
schedules for individuals, of 1.717 billion
hours and total estimated monetized costs
of $33.267 billion ($2019). Table 1 sum-
marizes the status of the PRA submissions
of the Treasury Department and the IRS
related to Forms 1120-F and 1040-NR.
The overall burden estimate provided
by the Treasury Department and the IRS
to OMB in the PRA submissions for OMB
control numbers 1545-0123 and 1545-
0074 are aggregate amounts related to
the U.S. Business Income Tax Return and
the U.S. Individual Income Tax Return,
along with any associated forms. The bur-
den estimates in these PRA submissions,
however, do not account for any burden
imposed by §1.865-3(d)(2)(ii)(B). The
Treasury Department and the IRS have
not identified the estimated burden for the
collections of information in §1.865-3(d)
(2)(ii)(B) because there are no burden es-
timates specific to §1.865-3(d)(2)(ii)(B)
currently available. The burden estimates
in the PRA submissions that the Treasury
Department and the IRS will submit to
OMB will in the future include, but not
isolate, the estimated burden related to the
collection of information in §1.865-3(d)
(2)(ii)(B).
The Treasury Department and the IRS
have included the burdens related to the
PRA submissions for OMB control num-
bers 1545-0123 and 1545-0074 in the
PRA analysis for other regulations issued
by the Treasury Department and the IRS
related to the taxation of cross-border in-
come. The Treasury Department and the
IRS encourage users of this information to
take measures to avoid overestimating the
burden that the collection of information
in §1.865-3(d)(2)(ii)(B), together with
other international tax provisions, impos-
es. Moreover, the Treasury Department
and the IRS also note that the Treasury
Department and the IRS estimate PRA
burdens on a taxpayer-type basis rather
than a provision-specific basis because an
estimate based on the taxpayer-type most
accurately reflects taxpayers’ interactions
with the forms.
The Treasury Department and the IRS
request comments on the forms that re-
flect the information collection burdens
related to the final regulations, including
estimates for how much time it would
take to comply with the paperwork bur-
den described above for each relevant
form and ways for the IRS to minimize
the paperwork burden. Proposed revi-
sions (if any) to these forms that reflect
the information collection contained in
§1.865-3(d)(2)(ii)(B) will be made avail-
able for public comment at https://apps.
irs.gov/app/picklist/list/draftTaxForms.
html and will not be finalized until after
these forms have been approved by OMB
under the PRA.

Bulletin No. 2020–53 1773 December 28, 2020
Table 1. Summary of Information Collection Request Submissions Related to Forms 1120-F and Forms 1040-NR.
FormType of FilerOMB
Number(s)
Status
Form 1040-NR
Individual (NEW Model)1545-0074Approved by OIRA 1/30/2020 until 1/31/2021.
Link: https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=201909-1545-021
Form 1120-F
Business (NEW Model)1545-0123Approved by OIRA 1/30/2020 until 1/31/2021.
Link: https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=201907-1545-001
II. Regulatory Flexibility Act
Pursuant to the Regulatory Flexibili-
ty Act (5 U.S.C. chapter 6), it is hereby
certified that these final regulations will
not have a significant economic impact
on a substantial number of small entities.
Although data are not readily available
to assess the number of small entities po-
tentially affected, any economic impact
of these regulations is unlikely to be sig-
nificant. Specifically, the regulations in
§§1.863-1 and 1.863-3 (with conforming
changes in cross-referencing regulations)
implement the statutory change made to
section 863(b) by the Act. This change
affects sales of inventory property by any
taxpayer where the taxpayer produces
the inventory (in whole or in part) within
the United States and sells that inventory
without the United States, or vice versa.
The change in sourcing for those entities
is attributable to the change in section
863(b) made by the Act. Sections 1.863-
1 and 1.863-3 merely implement the
statutory change with limited additional
guidance. The Treasury Department and
the IRS do not anticipate that any dif-
ferences between the changes in section
863(b) made by the Act and the changes
in §§1.863-1 and 1.863-3 made by these
regulations will have a significant eco-
nomic impact on a substantial number of
small entities.
The other regulations in this publica-
tion (other than changes to ensure con-
sistency with section 863(b)) are the final
regulations in §§1.864-5, 1.864-6, and
1.865-3. These regulations solely affect
non-U.S. taxpayers, which are not subject
to the Regulatory Flexibility Act.
Pursuant to section 7805(f) of the
Code, the proposed regulations preceding
these final regulations were submitted to
the Chief Counsel for Advocacy of the
Small Business Administration for com-
ment on their impact on small businesses.
No comments were received.
III. 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, up-
dated annually for inflation. These regula-
tions do not include any Federal mandate
that may result in expenditures by state,
local, or tribal governments, or by the pri-
vate sector in excess of that threshold.
IV. 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 regulations do
not have federalism implications and do
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 regulations
is Brad McCormack of the Office of Asso-
ciate Chief Counsel (International). How-
ever, other personnel from the Treasury
Department and the IRS participated in
the development of the regulations.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and record-
keeping requirements.
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 1 is amend-
ed as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding an entry for
§1.865-3 in numerical order.
The addition reads in part as follows:
Authority: 26 U.S.C. 7805 * * *
* * * * *
Section 1.865-3 also issued under 26
U.S.C. 865(j).
* * * * *
Par. 2. Section 1.863-0 is revised to
read as follows:
§1.863-0 Table of contents.
This section lists captions contained in
§§1.863-1 through 1.863-10.
§1.863-1 Allocation of gross income
under section 863(a).
(a) In general.
(b) Natural resources.
(1) In general.
(2) Additional production activities.
(3) Definitions.
(i) Production activity.

December 28, 2020 1774 Bulletin No. 2020–53
(ii) Additional production activities.
(4) Determination of fair market value.
(5) Determination of gross income.
(6) Tax return disclosure.
(7) Examples.
(i) Example 1. No additional produc-
tion, foreign source gross receipts.
(ii) Example 2. No additional produc-
tion, U.S. source gross receipts.
(iii) Example 3. Production in United
States, foreign sales.
(iv) Example 4. Production and sales in
United States.
(v) Example 5. Additional production.
(c) Determination of taxable income.
(d) Scholarships, fellowship grants,
grants, prizes, and awards.
(1) In general.
(2) Source of income.
(i) United States source income.
(ii) Foreign source income.
(iii) Certain activities conducted out-
side the United States.
(3) Definitions.
(4) Effective dates.
(i) Scholarships and fellowship grants.
(ii) Grants, prizes and awards.
(e) Residual interest in a REMIC.
(1) REMIC inducement fees.
(2) Excess inclusion income and net
losses.
(f) Applicability date.
§1.863-2 Allocation and apportionment
of taxable income.
(a) Determination of taxable income.
(b) Determination of source of taxable
income.
(c) Applicability date.
§1.863-3 Allocation and apportionment
of income from certain sales of inventory.
(a) In general.
(1) Scope.
(2) Cross references.
(b) Sourcing based solely on produc-
tion activities.
(c) Determination of the source of
gross income from production activity.
(1) Production only within the United
States or only within foreign countries.
(i) Source of income.
(ii) Definition of production assets.
(iii) Location of production assets.
(2) Production both within and without
the United States.
(i) Source of income.
(ii) Adjusted basis of production assets.
(A) In general.
(B) Production assets used to produce
other property.
(3) Anti-abuse rule.
(4) Examples.
(i) Example1. Source of gross income.
(ii) Example 2. Location of intangible
property.
(iii) Example 3. Anti-abuse rule.
(d) Determination of source of taxable
income.
(e) Income partly from sources within a
possession of the United States.
(1) In general.
(2) Allocation or apportionment for
Possession Production Sales.
(3) Allocation or apportionment for
Possession Purchase Sales.
(i) Determination of source of gross in-
come from Possession Purchase Sales.
(ii) Determination of source of gross
income from business activity.
(A) Source of gross income.
(B) Business activity.
(C) Location of business activity.
(1) Sales activity.
(2) Cost of goods sold.
(3) Expenses.
(4) Examples.
(i) Example 1: Purchase of goods man-
ufactured in possession.
(ii) Example 2: Purchase of goods
manufactured outside possession.
(5) Special rules for partnerships.
(f) Special rules for partnerships.
(1) General rule.
(2) Exceptions.
(i) In general.
(ii) Attribution of production assets to
or from a partnership.
(iii) Basis.
(3) Examples.
(i) Example 1. Distributive share of
partnership income.
(ii) Example 2. Distribution in kind.
(g) Applicability dates.
§1.863-4 Certain transportation services.
(a) General.
(b) Gross income.
(c) Allocation of costs or expenses.
(d) Items not included as costs or ex-
penses.
(1) Taxes and interest.
(2) Other business activity and general
expenses.
(3) Personal exemptions and special
deductions.
(e) Property used while within the
United States.
(1) General.
(2) Average property.
(3) Current assets.
(f) Taxable income.
(1) General.
(2) Interest and taxes.
(3) General expenses.
(4) Personal exemptions.
(5) Special deductions.
(g) Allocation based on books of ac-
count.
§1.863-6 Income from sources within a
foreign country.
§1.863-7 Allocation of income
attributable to certain notional principal
contracts under section 863(a).
(a) Scope.
(1) Introduction.
(2) Effective/applicability date.
(b) Source of notional principal con-
tract income.
(1) General rule.
(2) Qualified business unit exception.
(3) Effectively connected notional
principal contract income.
(c) Election.
(1) Eligibility and effect.
(2) Time for making election.
(3) Manner of making election.
(d) Example.
(e) Cross references.
§1.863-8 Source of income derived from
space and ocean activity under section
863(d).
(a) In general.
(b) Source of gross income from space
and ocean activity.
(1) Space and ocean income derived by
a United States person.
(2) Space and ocean income derived by
a foreign person.
(i) In general.

Bulletin No. 2020–53 1775 December 28, 2020
(ii) Space and ocean income derived by
a controlled foreign corporation.
(iii) Space and ocean income derived
by foreign persons engaged in a trade or
business within the United States.
(3) Source rules for income from cer-
tain sales of property.
(i) Sales of purchased property.
(ii) Sales of property produced by the
taxpayer.
(A) General.
(B) Production only in space or inter-
national water, or only outside space and
international water.
(C) Production both in space or inter-
national water and outside space and in-
ternational water.
(4) Special rule for determining the
source of gross income from services.
(5) Special rule for determining source
of income from communications activi-
ty (other than income from international
communications activity).
(c) Taxable income.
(d) Space and ocean activity.
(1) Definition.
(i) Space activity.
(ii) Ocean activity.
(2) Determining a space or ocean ac-
tivity.
(i) Production of property in space or
international water.
(ii) Special rule for performance of ser-
vices.
(A) General.
(B) Exception to the general rule.
(3) Exceptions to space or ocean activ-
ity.
(e) Treatment of partnerships.
(f) Examples.
(1) Example 1. Space activity—activi-
ty occurring on land and in space.
(2) Example 2. Space activity.
(3) Example 3. Services as space activ-
ity—de minimis value attributable to per-
formance occurring in space.
(4) Example 4. Space activity.
(5) Example 5. Space activity.
(6) Example 6. Space activity—treat-
ment of land activity.
(7) Example 7. Use of intangible prop-
erty in space.
(8) Example 8. Performance of ser-
vices.
(9) Example 9. Separate transactions.
(10) Example 10. Sale of property in
international water.
(11) Example 11. Sale of property in
space.
(12) Example 12. Sale of property in
space.
(13) Example 13. Source of income of
a foreign person.
(14) Example 14. Source of income of
a foreign person.
(g) Reporting and documentation re-
quirements.
(1) In general.
(2) Required documentation.
(3) Access to software.
(4) Use of allocation methodology.
(h) Applicability date.
§1.863-9 Source of income derived from
communications activity under section
863(a), (d), and (e).
(a) In general.
(b) Source of international communi-
cations income.
(1) International communications in-
come derived by a United States person.
(2) International communications in-
come derived by foreign persons.
(i) In general.
(ii) International communications in-
come derived by a controlled foreign cor-
poration.
(iii) International communications in-
come derived by foreign persons with
a fixed place of business in the United
States.
(iv) International communications in-
come derived by foreign persons engaged in
a trade or business within the United States.
(c) Source of U.S. communications in-
come.
(d) Source of foreign communications
income.
(e) Source of space/ocean communica-
tions income.
(f) Source of communications income
when taxpayer cannot establish the two
points between which the taxpayer is paid
to transmit the communication.
(g) Taxable income.
(h) Communications activity and in-
come derived from communications ac
-
tivity.
(1) Communications activity.
(i) General rule.
(ii) Separate transaction.
(2) Income derived from communica-
tions activity.
(3) Determining the type of communi-
cations activity.
(i) In general.
(ii) Income derived from international
communications activity.
(iii) Income derived from U.S. commu-
nications activity.
(iv) Income derived from foreign com-
munications activity.
(v) Income derived from space/ocean
communications activity.
(i) Treatment of partnerships.
(j) Examples.
(k) Reporting and documentation re-
quirements.
(1) In general.
(2) Required documentation.
(3) Access to software.
(4) Use of allocation methodology.
(l) Effective date.
§1.863-10 Source of income from a
qualified fails charge.
(a) In general.
(b) Qualified business unit exception.
(c) Effectively connected income ex-
ception.
(d) Qualified fails charge.
(e) Designated security.
(g) Effective/applicability date.
Par. 3. Section 1.863-0A is added to
read as follows:
§1.863-0A Table of contents.
This section lists captions contained in
§§1.863-3A and 1.863-3AT.
§1.863-3A Income from the sale of
personal property derived partly from
within and partly from without the United
States.
(a) General.
(1) Classes of income.
(2) Definition.
(b) Income partly from sources within
a foreign country.
(1) General.
(2) Allocation or apportionment.
(c) Income partly from sources within a
possession of the United States.
(1) General.
(2) Allocation or apportionment.
(3) Personal property produced and
sold.

December 28, 2020 1776 Bulletin No. 2020–53
(4) Personal property purchased and sold.
§1.863-3AT Income from the sale of
personal property derived partly from
within and partly from without the United
States (temporary).
(a) [Reserved].
(b) Income partly from sources within
a foreign country.
(1) [Reserved].
(2) Allocation or apportionment.
(c)(1) through (4) [Reserved].
Par. 4. Section 1.863-1 is amended as
follows:
a. In paragraph (a):
i. Revising the third sentence.
ii. Removing “§1.863-3(g)” and adding
in its place “§1.863-3(f)”.
b. Revising paragraph (b)(1).
c. In paragraph (b)(2):
i. Removing “prior to export terminal”
from the heading and adding in its place
“activities”.
ii. Removing “before the relevant prod-
uct is shipped from the export terminal”
from the first sentence.
iii. Adding “oil or gas” before “well”
and “other natural” before “deposit” in the
second sentence.
d. Removing “§§1.1502-13 or 1.863-
3(g)(2)” from paragraph (b)(3)(i) and add-
ing in its place Ҥ1.1502-13 or 1.863-3(f)
(2)”.
e. In paragraph (b)(3)(ii):
i. Adding “uncut” before “timber” in
the first sentence.
ii. Adding “(except for §1.954-3(a)(4)
(iv))” at the end of the second sentence.
iii. Removing “to or from the export
terminal” from the third sentence.
f. Removing paragraph (b)(3)(iii).
g. In paragraph (b)(6), removing “this
paragraph (b)” from the first sentence and
adding in its place “paragraph (b)(2) of
this section”.
h. Designating Examples 1, 2, 3, 4, and
5 of paragraph (b)(7) as paragraphs (b)(7)
(i) through (v).
i. Revising newly designated para-
graphs (b)(7)(i) through (v).
j. In paragraph (f):
i. Revising the heading.
ii. Adding three sentences at the start of
the paragraph.
The revisions and additions read as fol-
lows:
§1.863-1 Allocation of gross income
under section 863(a).
(a) * * * See also section 865(b) for
rules for sourcing income from the sale
of inventory property, within the meaning
of section 865(i)(1) (inventory), general-
ly, and section 865(e)(2) and §1.865-3 for
sourcing income from the sale of personal
property (including inventory) by a non-
resident that is attributable to the nonres-
ident’s office or other fixed place of busi-
ness in the United States. * * *
(b) Natural resources—(1) In gener-
al. Notwithstanding any other provision
of this part, except to the extent provid-
ed in paragraph (b)(2) of this section or
§1.865-3, gross receipts from the sale
outside the United States of products
derived from the ownership or opera-
tion of any farm, mine, oil or gas well,
other natural deposit, or uncut timber
within the United States shall be treated
as from sources within the United States,
and gross receipts from the sale with-
in the United States of products derived
from the ownership or operation of any
farm, mine, oil or gas well, other natural
deposit, or uncut timber outside the Unit-
ed States shall be treated as from sources
without the United States.
* * * * *
(7) * * *
(i) Example 1. No additional production, foreign
source gross receipts. U.S. Mines, a domestic corpo-
ration, operates a copper mine and mill in Country
X. U.S. Mines extracts copper-bearing rocks from
the ground and transports the rocks to the mill where
the rocks are ground and processed to produce cop-
per-bearing concentrate. The concentrate is trans-
ported to a port where it is dried in preparation for
export, stored, and then shipped to purchasers in the
United States. Because, under the facts and circum-
stances, none of U.S. Mines’ activities constitute ad-
ditional production activities, within the meaning of
paragraph (b)(3)(ii) of this section, paragraph (b)(2)
of this section does not apply, and under paragraph
(b)(1) of this section, gross receipts from the sale of
the concentrate will be treated as from sources with-
out the United States.
(ii) Example 2. No additional production, U.S.
source gross receipts. U.S. Gas, a domestic corpo-
ration, extracts natural gas within the United States,
and transports the natural gas to a Country X port
where it is liquefied in preparation for shipment. The
liquefied natural gas is then transported via freighter
and sold without additional production activities in
a foreign country. Under paragraph (b)(3)(ii) of this
section, liquefaction of natural gas is not an addition-
al production activity because liquefaction prepares
the natural gas for transportation. Therefore, under
paragraph (b)(1) of this section, gross receipts from
the sale of the liquefied natural gas will be treated as
from sources within the United States.
(iii) Example 3. Production in United States,
foreign sales. U.S. Gold, a domestic corporation,
mines gold in Country X, produces gold jewelry
using production assets located in the United States,
and sells the jewelry in Country Y. Assume that the
fair market value of the gold before the additional
production activities in the United States is $40x
and that U.S. Gold ultimately sells the gold jewel-
ry in Country Y for $100x. Under paragraph (b)(2)
of this section, $40x of U.S. Gold’s gross receipts
will be treated as from sources without the United
States, and the remaining $60x of gross receipts will
be treated as from sources within the United States
under §1.863-3.
(iv) Example 4. Production and sales in United
States. U.S. Oil, a domestic corporation, extracts oil
in Country X, transports the oil via a pipeline to the
United States, refines the oil using production assets
located in the United States, and sells the refined
product in the United States to unrelated persons.
Assume that the fair market value of the oil before
refinement in the United States is $80x and U.S. Oil
ultimately sells the refined product for $100x. Un-
der paragraph (b)(2) of this section, $80x of gross
receipts will be treated as from sources without
the United States, and the remaining $20x of gross
receipts will be treated as from sources within the
United States under §1.863-3.
(v) Example 5. Additional production. The facts
are the same as in paragraph (b)(7)(i) of this section
(the facts in Example 1), except that U.S. Mines also
operates a smelter in Country X. The concentrate
output from the mill is transported to the smelter
where it is transformed into smelted copper. The
smelted copper is exported to purchasers in the Unit-
ed States. Under the facts and circumstances, all the
processes applied to make copper concentrate are
considered mining. Therefore, under paragraph (b)
(2) of this section, gross receipts equal to the fair
market value of the concentrate at the smelter will
be treated as from sources without the United States.
Under the facts and circumstances, the conversion of
the concentrate into smelted copper is an addition-
al production activity in a foreign country within
the meaning of paragraph (b)(3)(ii) of this section.
Therefore, the source of U.S. Mines’s excess gross
receipts will be determined under §1.863-3, pursuant
to paragraph (b)(2) of this section.
* * * * *
(f) Applicability date. Paragraph (b) of
this section applies to taxable years ending
on or after December 23, 2019. However,
a taxpayer may apply paragraph (b) of this
section in its entirety for taxable years
beginning after December 31, 2017, and
ending before December 23, 2019, pro-
vided that the taxpayer and all persons re-
lated to the taxpayer (within the meaning
of section 267 or 707) apply paragraph (b)
of this section and §§1.863-2(b), 1.863-
3, 1.863-8(b)(3)(ii), 1.864-5(a) and (b),
1.864-6(c)(2), and 1.865-3 in their entire-
ty for the taxable year, and once applied,

Bulletin No. 2020–53 1777 December 28, 2020
the taxpayer and all persons related to the
taxpayer (within the meaning of section
267 or 707) continue to apply these regu-
lations in their entirety for all subsequent
taxable years. For regulations generally
applicable to taxable years ending before
December 23, 2019, see §1.863-1 as con-
tained in 26 CFR part 1 revised as of April
1, 2020. * * *
Par. 5. Section 1.863-2 is amended as
follows:
a. In paragraph (a) introductory text:
i. Removing “(and that is treated as
derived partly from sources within and
partly from sources without the United
States)” from the third sentence.
ii. Adding a colon after the word “in-
come” at the end of the paragraph.
b. Revising paragraph (b).
c. Revising paragraph (c).
The revisions read as follows:
§1.863-2 Allocation and apportionment
of taxable income.
* * * * *
(b) Determination of source of taxable
income. Income treated as derived from
sources partly within and partly without
the United States under paragraph (a)
of this section may be allocated or ap-
portioned to sources within and without
the United States pursuant to §§1.863-1,
1.863-3, 1.863-4, 1.863-8, and 1.863-9.
To determine the source of certain types
of income described in paragraph (a)(1)
of this section, see §1.863-4. To determine
the source of gross income described
in paragraph (a)(2) of this section, see
§1.863-1 for natural resources, §1.863-3
for other sales of inventory property, and
§1.863-8 for source of gross income from
space and ocean activity. Section 1.865-3
may apply instead of the provisions in this
section to source gross income from sales
of personal property (including invento-
ry property) by nonresidents attributable
to an office or other fixed place of busi-
ness in the United States. To determine
the source of income partly from sources
within a possession of the United States,
including income described in paragraph
(a)(3) of this section, see §1.863-3(e).
(c) Applicability date. Except as pro-
vided in this paragraph (c), this section
applies to taxable years beginning after
December 30, 1996. Paragraph (b) of this
section applies to taxable years ending on
or after December 23, 2019. However, a
taxpayer may apply paragraph (b) of this
section in its entirety for taxable years
beginning after December 31, 2017, and
ending before December 23, 2019, pro-
vided that the taxpayer and all persons re-
lated to the taxpayer (within the meaning
of section 267 or 707) apply paragraph (b)
of this section and §§1.863-1(b), 1.863-
3, 1.863-8(b)(3)(ii), 1.864-5(a) and (b),
1.864-6(c)(2), and 1.865-3 in their entire-
ty for the taxable year, and once applied,
the taxpayer and all persons related to the
taxpayer (within the meaning of section
267 or 707) continue to apply these regu-
lations in their entirety for all subsequent
taxable years. For regulations generally
applicable to taxable years ending before
December 23, 2019, see §1.863-2 as con-
tained in 26 CFR part 1 revised as of April
1, 2020.
Par. 6. Section 1.863-3 is revised as
follows:
§1.863-3 Allocation and apportionment
of income from certain sales of
inventory.
(a) In general—(1) Scope. Subject
to the rules of §1.865-3, paragraphs (a)
through (d) of this section apply to deter-
mine the source of income derived from
the sale of inventory property (invento-
ry) that a taxpayer produces (in whole
or in part) within the United States and
sells without the United States, or that a
taxpayer produces (in whole or in part)
without the United States and sells with-
in the United States (collectively, Section
863(b)(2) Sales). See section 865(i)(1) for
the definition of inventory. Paragraph (b)
of this section provides that the source of
gross income from Section 863(b)(2) Sales
is based solely on the production activities
with respect to the inventory. Paragraph
(c) of this section describes how to deter-
mine source based on production activi-
ty, including when inventory is produced
partly within the United States and partly
without the United States. Paragraph (d)
of this section determines taxable income
from Section 863(b)(2) Sales. Paragraph
(e) of this section applies to determine the
source of certain income derived from a
possession of the United States. Paragraph
(f) of this section provides special rules
for partnerships for all sales subject to
§§1.863-1 through 1.863-3. Paragraph (g)
of this section provides applicability dates
for the rules in this section.
(2) Cross references. To determine the
source of income derived from the sale
of personal property (including invento-
ry) by a nonresident that is attributable
to the nonresident’s office or other fixed
place of business in the United States un-
der section 865(e)(2) and §1.865-3(c), the
rules of §1.865-3 apply, and the rules of
this section do not apply except to the ex-
tent provided in §1.865-3. To determine
the source of income from sales of prop-
erty produced by the taxpayer, when the
property is either produced in whole or in
part in space, as defined in §1.863-8(d)(1)
(i), or international water, as defined in
§1.863-8(d)(1)(ii), or is sold in space or
international water, the rules of §1.863-
8 apply, and the rules of this section do
not apply except to the extent provided in
§1.863-8.
(b) Sourcing based solely on produc-
tion activities. Subject to the rules of
§1.865-3, all income, gain, or loss derived
from Section 863(b)(2) Sales is allocated
and apportioned solely on the basis of the
production activities with respect to the
inventory.
(c) Determination of the source of gross
income from production activity—(1) Pro-
duction only within the United States or
only within foreign countries—(i) Source
of income. For purposes of this section,
production activity means an activity that
creates, fabricates, manufactures, extracts,
processes, cures, or ages inventory. See
§1.864-1. Whether a taxpayer’s activi-
ties constitute production activity is de-
termined under the principles of §1.954-
3(a)(4) (except for §1.954-3(a)(4)(iv)).
Subject to the provisions in §1.1502-13
or paragraph (f)(2)(ii) of this section, the
only production activities that are taken
into account for purposes of §§1.863-1,
1.863-2, and this section are those con-
ducted directly by the taxpayer. Where
the taxpayer’s production assets are locat-
ed only within the United States or only
outside the United States, gross income is
sourced where the taxpayer’s production
assets are located. For rules regarding the
source of income when production assets
are located both within the United States
and without the United States, see para-

December 28, 2020 1778 Bulletin No. 2020–53
graph (c)(2) of this section. For rules re-
garding the source of income when pro-
duction takes place, in whole or in part,
in space or international water, the rules
of §1.863-8 apply, and the rules of this
section do not apply except to the extent
provided in §1.863-8.
(ii) Definition of production assets.
Subject to the provisions of §1.1502-13
and paragraph (f)(2)(ii) of this section,
production assets include only tangible
and intangible assets owned directly by
the taxpayer that are directly used by the
taxpayer to produce inventory described
in paragraph (a) of this section. Produc-
tion assets do not include assets that are
not directly used to produce inventory
described in paragraph (a) of this section.
Thus, production assets do not include
such assets as accounts receivables, intan-
gibles not related to production of invento-
ry (e.g., marketing intangibles, including
trademarks and customer lists), transpor-
tation assets, warehouses, the inventory
itself, raw materials, or work-in-process.
In addition, production assets do not in-
clude cash or other liquid assets (includ-
ing working capital), investment assets,
prepaid expenses, or stock of a subsidiary.
(iii) Location of production assets. For
purposes of this section, a tangible pro-
duction asset will be considered located
where the asset is physically located. An
intangible production asset will be con-
sidered located where the tangible pro-
duction assets owned by the taxpayer to
which it relates are located.
(2) Production both within and without
the United States—(i) Source of income.
Where the taxpayer’s production assets
are located both within and without the
United States, income from sources with-
out the United States will be determined
by multiplying the gross income by a
fraction, the numerator of which is the av-
erage adjusted basis of production assets
that are located outside the United States
and the denominator of which is the av-
erage adjusted basis of all production as-
sets within and without the United States.
The remaining income is treated as from
sources within the United States.
(ii) Adjusted basis of production as-
sets—(A) In general. For purposes of
paragraph (c)(2)(i) of this section, the ad-
justed basis of an asset is determined by
using the alternative depreciation system
under section 168(g)(2). The adjusted ba-
sis of all production assets for purposes of
paragraph (c)(2)(i) of this section is de-
termined as though the production assets
were subject to the alternative deprecia-
tion system set forth in section 168(g)(2)
for the entire period that such property has
been in service. The adjusted basis of the
production assets is determined without
regard to the election to expense certain
depreciable assets under section 179 and
without regard to any additional first-
year depreciation provision (for example,
section 168(k), (l), and (m), and former
sections 1400L(b) and 1400N(d)). The
average adjusted basis of assets is com-
puted by averaging the adjusted basis at
the beginning and end of the taxable year,
unless by reason of changes during the
taxable year, as might be the case in the
event of a major acquisition or disposition
of assets, the average would materially
distort the calculation in paragraph (c)(2)
(i) of this section. In this event, the aver-
age adjusted basis is determined upon a
more appropriate basis that is weighted to
reasonably reflect the period for which the
assets are held by the taxpayer during the
taxable year.
(B) Production assets used to produce
other property. If a production asset is
used to produce inventory sold in Section
863(b)(2) Sales and also used to produce
other property during the taxable year, the
portion of its adjusted basis that is includ-
ed in the fraction described in paragraph
(c)(2)(i) of this section will be determined
under any method that reasonably reflects
the portion of the asset that produces in-
ventory sold in Section 863(b)(2) Sales.
For example, the portion of such an as-
set that is included in the formula may
be determined by multiplying the asset’s
average adjusted basis by a fraction, the
numerator of which is the gross receipts
from sales of inventory from Section
863(b)(2) Sales produced by the asset, and
the denominator of which is the gross re-
ceipts from all property produced by that
asset.
(3) Anti-abuse rule. The purpose of
paragraph (b) of this section and this
paragraph (c) is to attribute the source of
the taxpayer’s gross income from certain
sales of inventory property to the loca-
tion of the taxpayer’s production activi-
ty. Therefore, if the taxpayer has entered
into or structured one or more transactions
with a principal purpose of reducing its
U.S. tax liability in a manner inconsistent
with the purpose of paragraph (b) of this
section or this paragraph (c), the Commis-
sioner may make appropriate adjustments
so that the source of the taxpayer’s gross
income more clearly reflects the location
of production activity. For example, a tax-
payer may be subject to the rule in this
paragraph (c)(3) if domestic production
assets are acquired by a related partner-
ship (or a subsidiary of a related partner-
ship) with a principal purpose of reducing
its U.S. tax liability by claiming that the
taxpayer’s income from sales of inventory
is subject to section 862(a)(6) rather than
section 863(b).
(4) Examples. The following examples
illustrate the rules of this paragraph (c):
(i) Example 1. Source of gross income—(A)
Facts. A, a U.S. corporation, produces widgets that
are sold both within the United States and within a
foreign country. The initial manufacture of all wid-
gets occurs in the United States. The second stage of
production of widgets that are sold within a foreign
country is completed within the country of sale. A’s
U.S. plant and machinery which is involved in the
initial manufacture of the widgets has an average ad-
justed basis of $200, as determined using the alterna-
tive depreciation system under section 168(g)(2). A
also owns warehouses used to store work-in-process.
A owns foreign equipment with an average adjusted
basis of $25. A’s gross receipts from all sales of wid-
gets is $100, and its gross receipts from export sales
of widgets is $25. Assume that apportioning average
adjusted basis using gross receipts is reasonable. As-
sume A’s cost of goods sold from the sale of widgets
in the foreign countries is $13 and thus, its gross in-
come from widgets sold in foreign countries is $12.
(B) Analysis. A determines its gross income from
sources without the United States by multiplying A’s
$12 of gross income from sales of widgets in foreign
countries by a fraction, the numerator of which is all
relevant foreign production assets, or $25, and the
denominator of which is all relevant production as-
sets, or $75 ($25 foreign assets + ($200 U.S. assets
× $25 gross receipts from export sales/$100 gross
receipts from all sales)). Therefore, A’s gross income
from sources without the United States is $4 ($12 ×
($25/$75)).
(ii) Example 2. Location of intangible property.
Assume the same facts as in paragraph (c)(4)(i)(A)
of this section (the facts in Example 1), except that
A employs a patented process that applies only to the
initial production of widgets. In computing the for-
mula used to determine the source of gross income,
A’s patent, if it has an average adjusted basis, would
be located in the United States.
(iii) Example 3. Anti-abuse rule—(A) Facts.
Assume the same facts as in paragraph (c)(4)(i)(A)
of this section (the facts in Example 1). A sells its
U.S. assets to B, an unrelated U.S. corporation, with
a principal purpose of reducing its U.S. tax liability

Bulletin No. 2020–53 1779 December 28, 2020
by manipulating the property fraction. A then leases
these assets from B. After this transaction, under the
general rule of paragraph (c)(2) of this section, all of
A’s gross income would be considered from sources
without the United States, because all of A’s relevant
production assets are located within a foreign coun-
try. Since the leased property is not owned by the
taxpayer, it is not included in the fraction.
(B) Analysis. Because A has entered into a trans-
action with a principal purpose of reducing its U.S.
tax liability by manipulating the formula described
in paragraph (c)(2)(i) of this section, A’s income
must be adjusted to more clearly reflect the source of
that income. In this case, the Commissioner may re-
determine the source of A’s gross income by ignoring
the sale-leaseback transactions.
(d) Determination of source of taxable
income. Once the source of gross income
has been determined under paragraph (c)
of this section, the taxpayer must properly
allocate and apportion its expenses, loss-
es, and other deductions to its respective
amounts of gross income from sources
within and without the United States from
its Section 863(b)(2) Sales. See §§1.861-8
through 1.861-14T and 1.861-17.
(e) Income partly from sources within
a possession of the United States—(1) In
general. This paragraph (e) relates to cer-
tain sales that give rise to income, gain,
or loss that is treated as derived partly
from sources within the United States and
partly from sources within a possession of
the United States (Section 863 Possession
Sales). This paragraph (e) applies to deter-
mine the source of income derived from
the sale of inventory produced (in whole
or in part) by a taxpayer within the Unit-
ed States and sold within a possession of
the United States, or produced (in whole
or in part) by a taxpayer in a possession
of the United States and sold within the
United States (collectively, Possession
Production Sales). It also applies to deter-
mine the source of income derived from
the purchase of personal property within
a possession of the United States and its
sale within the United States (Possession
Purchase Sales). A taxpayer subject to this
paragraph (e) must apportion gross in-
come from Section 863 Possession Sales
under paragraph (e)(2) of this section (in
the case of Possession Production Sales)
or under paragraph (e)(3) of this section
(in the case of Possession Purchase Sales).
The source of taxable income from Sec-
tion 863 Possession Sales is determined
under paragraph (d) of this section.
(2) Allocation or apportionment for
Possession Production Sales. The source
of gross income from Possession Produc-
tion Sales is determined under the rules of
paragraph (c) of this section, except that
the term possession of the United States is
substituted for foreign country wherever it
appears.
(3) Allocation or apportionment for
Possession Purchase Sales—(i) Deter-
mination of source of gross income from
Possession Purchase Sales. Gross in-
come from Possession Purchase Sales is
allocated in its entirety to the taxpayer’s
business activity, and is then apportioned
between sources within the United States
and sources within a possession of the
United States under paragraph (e)(3)(ii) of
this section.
(ii) Determination of source of gross in-
come from business activity—(A) Source
of gross income. Gross income from the
taxpayer’s business activity is sourced in
the possession in the same proportion that
the amount of the taxpayer’s business ac-
tivity for the taxable year within the pos-
session bears to the amount of the taxpay-
er’s business activity for the taxable year
both within the possession and outside
the possession, with respect to Possession
Purchase Sales. The remaining income is
sourced in the United States.
(B) Business activity. For purposes of
this paragraph (e)(3)(ii), the taxpayer’s
business activity is equal to the sum of—
(1) The amounts for the taxable period
paid for wages, salaries, and other com-
pensation of employees, and other ex-
penses attributable to Possession Purchase
Sales (other than amounts that are nonde-
ductible under section 263A, interest, and
research and development);
(2) Cost of goods sold attributable to
Possession Purchase Sales during the tax-
able period; and
(3) Possession Purchase Sales for the
taxable period.
(C) Location of business activity. For
purposes of determining the location of
the taxpayer’s business activity within a
possession, the following rules apply:
(1) Sales activity. Receipts from gross
sales will be attributed to a possession in
accordance with the principles of §1.861-
7(c).
(2) Cost of goods sold. Payments for
cost of goods sold will be properly at-
tributable to gross receipts from sources
within the possession only to the extent
that the property purchased was manufac-
tured, produced, grown, or extracted in the
possession (within the meaning of section
954(d)(1)(A)).
(3) Expenses. Expenses will be at-
tributed to a possession under the rules of
§§1.861-8 through 1.861-14T.
(4) Examples. The following examples
illustrate the rules of paragraph (e)(3)(ii)
of this section relating to the determina-
tion of source of gross income from busi-
ness activity:
(i) Example 1. Purchase of goods manufactured
in possession—(A) Facts. U.S. Co. purchases in a
possession product X for $80 from A. A manufac-
tures X in the possession. Without further produc-
tion, U.S. Co. sells X in the United States for $100.
Assume U.S. Co. has sales and administrative ex-
penses in the possession of $10.
(B) Analysis. To determine the source of U.S.
Co.’s gross income, the $100 gross income from
sales of X is allocated entirely to U.S. Co.’s busi-
ness activity. Forty-seven dollars of U.S. Co.’s gross
income is sourced in the possession. [Possession
expenses ($10) plus possession purchases (i.e., cost
of goods sold) ($80) plus possessions sales ($0), di-
vided by total expenses ($10) plus total purchases
($80) plus total sales ($100).] The remaining $53 is
sourced in the United States.
(ii) Example 2. Purchase of goods manufactured
outside possession—(A) Facts. Assume the same
facts as in paragraph (e)(4)(i)(A) of this section (the
facts in Example 1), except that A manufactures X
outside the possession.
(B) Analysis. To determine the source of U.S.
Co.’s gross income, the $100 gross income is allocat-
ed entirely to U.S. Co.’s business activity. Five dol-
lars of U.S. Co.’s gross income is sourced in the pos-
session. [Possession expenses ($10) plus possession
purchases ($0) plus possession sales ($0), divided by
total expenses ($10) plus total purchases ($80) plus
total sales ($100).] The $80 purchase is not included
in the numerator used to determine U.S. Co.’s busi-
ness activity in the possession, since product X was
not manufactured in the possession. The remaining
$95 is sourced in the United States.
(5) Special rules for partnerships. In
applying the rules of this paragraph (e) to
transactions involving partners and part-
nerships, the rules of paragraph (f) of this
section apply.
(f) Special rules for partnerships—(1)
General rule. For purposes of §1.863-1
and this section, a taxpayer’s production
activity does not include production activ-
ities conducted by a partnership of which
the taxpayer is a partner either directly or
through one or more partnerships, except
as otherwise provided in paragraphs (c)(3)
or (f)(2) of this section.
(2) Exceptions—(i) In general. For
purposes of determining the source of the
partner’s distributive share of partnership

December 28, 2020 1780 Bulletin No. 2020–53
income or determining the source of the
partner’s income from the sale of invento-
ry property which the partnership distrib-
utes to the partner in kind, the partner’s
production activity includes an activity
conducted by the partnership. In addition,
the production activity of a partnership
includes the production activity of a tax-
payer that is a partner either directly or
through one or more partnerships, to the
extent that the partner’s production activ-
ity is related to inventory that the partner
contributes to the partnership in a transac-
tion described under section 721.
(ii) Attribution of production assets to
or from a partnership. A partner will be
treated as owning its proportionate share
of the partnership’s production assets only
to the extent that, under paragraph (f)(2)
(i) of this section, the partner’s activity
includes production activity conducted
through a partnership. A partner’s share
of partnership assets will be determined
by reference to the partner’s distributive
share of partnership income for the year
attributable to such production assets.
Similarly, to the extent a partnership’s ac-
tivities include the production activities of
a partner, the partnership will be treated
as owning the partner’s production assets
related to the inventory that is contributed
in kind to the partnership. See paragraph
(c)(2)(ii) of this section for rules appor-
tioning the basis of assets to Section 863
Sales.
(iii) Basis. For purposes of this sec-
tion, in those cases where the partner is
treated as owning its proportionate share
of the partnership’s production assets, the
partner’s basis in production assets held
through a partnership shall be determined
by reference to the partnership’s adjusted
basis in its assets (including a partner’s
special basis adjustment, if any, under
section 743). Similarly, a partnership’s
basis in a partner’s production assets is
determined with reference to the partner’s
adjusted basis in its assets.
(3) Examples. The following examples
illustrate the rules of this paragraph (f):
(i) Example 1. Distributive share of partnership
income. A, a U.S. corporation, forms a partnership in
the United States with B, a country X corporation. A
and B each have a 50 percent interest in the income,
gains, losses, deductions and credits of the partner-
ship. The partnership is engaged in the manufacture
and sale of widgets. The widgets are manufactured
in the partnership’s plant located in the United States
and are sold by the partnership outside the United
States. The partnership owns the manufacturing fa-
cility and all other production assets used to produce
the widgets. A’s distributive share of partnership in-
come includes 50 percent of the sales income from
these sales. In applying the rules of section 863 to
determine the source of its distributive share of part-
nership income from the export sales of widgets, A is
treated as carrying on the activity of the partnership
related to production of these widgets and as own-
ing a proportionate share of the partnership’s assets
related to production of the widgets, based upon its
distributive share of partnership income.
(ii) Example 2. Distribution in kind. Assume the
same facts as in paragraph (f)(3)(i) of this section
(the facts in Example 1) except that the partnership,
instead of selling the widgets, distributes the wid-
gets to A and B. A then further processes the wid-
gets and then sells them outside the United States.
In determining the source of the income earned by
A on the sales outside the United States, A is treated
as conducting the activities of the partnership related
to production of the distributed widgets. Thus, the
source of gross income on the sale of the widgets
is determined under section 863 and this section. In
applying paragraph (c) of this section, A is treated as
owning its proportionate share of the partnership’s
production assets based upon its distributive share of
partnership income.
(g) Applicability dates. This section ap-
plies to taxable years ending on or after
December 23, 2019. However, a taxpayer
may apply this section in its entirety for
taxable years beginning after December
31, 2017, and ending before December
23, 2019, provided that the taxpayer and
all persons related to the taxpayer (within
the meaning of section 267 or 707) ap-
ply this section and §§1.863-1(b), 1.863-
2(b), 1.863-8(b)(3)(ii), 1.864-5(a) and (b),
1.864-6(c)(2), and 1.865-3 in their entire-
ty for the taxable year, and once applied,
the taxpayer and all persons related to the
taxpayer (within the meaning of section
267 or 707) continue to apply these regu-
lations in their entirety for all subsequent
taxable years. For regulations generally
applicable to taxable years ending before
December 23, 2019, see §1.863-3 as con-
tained in 26 CFR part 1 revised as of April
1, 2020.
Par. 7. Section 1.863-8 is amended as
follows:
a. Revising paragraph (b)(3)(ii)(A).
b. In paragraph (b)(3)(ii)(B):
i. Removing “income allocable to pro-
duction activity” wherever it appears and
adding in its place “gross income”.
ii. Removing “§1.863-3(c)(1)” from
the second sentence and adding in its
place “§1.863-3(c)”.
c. In paragraph (b)(3)(ii)(C):
i. Removing “allocable to production
activity” wherever it appears.
ii. Removing “allocated to production
activity” from the fifth sentence.
iii. Removing “§1.863-3(c)(1)” from
the fifth sentence and adding in its place
“§1.863-3(c)”.
d. Removing paragraph (b)(3)(ii)(D).
e. In paragraph (c), removing “(b)(3)
(ii)(C)” from the first sentence and adding
in its place “(b)(3)(ii)”.
f. Designating Examples 1 through
14 of paragraph (f) as paragraphs (f)(1)
through (14).
g. In newly designated paragraphs (f)
(1) through (14), removing the period
between the second and third level para-
graph headings and adding an em-dash in
its place.
h. Removing “this Example 4” from
newly designated paragraph (f)(4)(i)
wherever it appears and adding in its place
“paragraph (f)(4)(i) (Example 4)”.
i. Removing “Example 4” from newly
designated paragraph (f)(5)(i) and adding
in its place “paragraph (f)(4)(i) of this sec-
tion (the facts in Example 4)”.
j. Revising newly designated paragraph
(f)(6)(ii).
k. Removing “Example 8” from newly
designated paragraph (f)(9)(i) and adding
in its place “in paragraph (f)(8)(i) of this
section (the facts in Example 8)”.
l. Removing “Example 8” from newly
designated paragraph (f)(9)(ii) and adding
in its place “paragraph (f)(8)(ii) of this
section (the analysis in Example 8)”.
m. Revising newly designated para-
graph (f)(11)(ii).
n. In paragraph (g)(1), removing “(b)
(3)(ii)(C)” from the first sentence and add-
ing in its place “(b)(3)(ii)”.
o. In paragraph (g)(4) introductory
text, removing “(b)(3)(ii)(C)” from the
first sentence and adding in its place “(b)
(3)(ii)”.
p. In paragraph (h), adding three sen-
tences at the end of the paragraph.
The revisions and additions read as fol-
lows:
§1.863-8 Source of income derived
from space and ocean activity under
section 863(d).
* * * * *
(b) * * *

Bulletin No. 2020–53 1781 December 28, 2020
(3) * * *
(ii) Sales of property produced by the
taxpayer—(A) General. If the taxpay-
er both produces property and sells such
property and either the production (in
whole or in part) or the sale takes place
in space or international water, the tax-
payer must allocate and apportion all in-
come, gain, or loss derived from sales of
such property solely on the basis of the
production activities with respect to such
property, and the source of that income
will be determined under paragraph (b)(3)
(ii)(B) or (C) of this section. To determine
the source of income derived from the sale
of personal property (including inventory)
by a nonresident that is attributable to the
nonresident’s office or other fixed place of
business in the United States under sec-
tion 865(e)(2), the rules of §1.865-3 apply,
and the rules of this section do not apply.
* * * * *
(f) * * *
(6) * * *
(ii) Analysis. The collection of data and
creation of images in space is character-
ized as the creation of property in space.
Because S both produces and sells the
data, the source of the gross income from
the sale of the data is determined under
paragraph (b)(3)(ii) of this section solely
on the basis of the production activities.
The source of S’s gross income is deter-
mined under paragraph (b)(3)(ii)(C) of
this section because production activities
occur both in space and on land.
* * * * *
(11) * * *
(ii) Analysis. Because S’s rights, title,
and interest in the satellite pass to the
customer in space, the sale takes place
in space under §1.861-7(c), and the sale
transaction is space activity under para-
graph (d)(1)(i) of this section. The source
of income derived from the sale of the sat-
ellite manufactured in the United States
and sold in space is determined under
paragraph (b)(3)(ii) of this section solely
on the basis of the production activities
with respect to the satellite.
* * * * *
(h) * * * Paragraph (b)(3)(ii) of this
section applies to taxable years ending on
or after December 23, 2019. However, a
taxpayer may apply paragraph (b)(3)(ii)
of this section in its entirety for taxable
years beginning after December 31, 2017,
and ending before December 23, 2019,
provided that the taxpayer and all persons
related to the taxpayer (within the mean-
ing of section 267 or 707) apply paragraph
(b)(3)(ii) of this section and §§1.863-1(b),
1.863-2(b), 1.863-3, 1.864-5(a) and (b),
1.864-6(c)(2), and 1.865-3 in their entire-
ty for the taxable year, and once applied,
the taxpayer and all persons related to the
taxpayer (within the meaning of section
267 or 707) continue to apply these regu-
lations in their entirety for all subsequent
taxable years. For regulations generally
applicable to taxable years ending before
December 23, 2019, see §1.863-8 as con-
tained in 26 CFR part 1 revised as of April
1, 2020.
Par. 8. Section 1.864-5 is amended as
follows:
a. Adding a sentence to the end of para-
graph (a);
b. Revising the first sentence of para-
graph (b) introductory text; and
c. Adding paragraph (e).
The additions read as follows:
§1.864-5 Foreign source income
effectively connected with U.S.
business.
(a) * * * To determine the source of
income, gain or loss from the sale of per-
sonal property (including inventory prop-
erty) attributable to an office or other fixed
place of business in the United States by
nonresidents, as defined in section 865(g)
(1)(B), see §1.865-3.
(b) * * * Income, gain, or loss from
sources without the United States other
than income described in paragraph (c)
of this section or income from section
865(e)(2) sales, as defined in §1.865-3(c),
shall be taken into account pursuant to
paragraph (a) of this section in applying
§§1.864-6 and 1.864-7 only if it consists
of—
* * * * *
(e) Applicability dates. Paragraphs (a)
and (b) of this section apply to taxable
years ending on or after December 23,
2019. However, a taxpayer may apply
paragraphs (a) and (b) of this section in
their entirety for taxable years beginning
after December 31, 2017, and ending be-
fore December 23, 2019, provided that the
taxpayer and all persons related to the tax-
payer (within the meaning of section 267
or 707) apply paragraphs (a) and (b) of
this section and §§1.863-1(b), 1.863-2(b),
1.863-3, 1.863-8(b)(3)(ii), 1.864-6(c)(2),
and 1.865-3 in their entirety for the tax-
able year, and once applied, the taxpayer
and all persons related to the taxpayer
(within the meaning of section 267 or 707)
continue to apply these regulations in their
entirety for all subsequent taxable years.
For regulations generally applicable to
taxable years ending before December
23, 2019, see §1.864-5 as contained in 26
CFR part 1 revised as of April 1, 2020.
Par. 9. Section 1.864-6 is amended as
follows:
a. Revising paragraph (c)(2).
b. Revising paragraph (c)(3).
c. Adding paragraph (c)(4).
The revisions and additions read as fol-
lows:
§1.864-6 Income, gain, or loss
attributable to an office or other fixed
place of business in the United States.
* * * * *
(c) * * *
(2) Special limitation in case of sales
of goods or merchandise through U.S. of-
fice. Notwithstanding paragraph (c)(1) of
this section, the special rules described in
this paragraph (c)(2) apply with respect to
a sale of goods or merchandise specified
in §1.864-5(b)(3), to which paragraph (b)
(3)(i) of this section does not apply. In the
case of a nonresident alien with a tax home
within the United States, as defined in sec-
tion 911(d)(3), the amount of income from
the sale of goods or merchandise that is
properly allocable to the individual’s U.S.
office is determined under §1.865-3(d).
(3) Examples. The application of this
paragraph (c) may be illustrated by the
following examples—
(i) Example 1. Sales of produced inventory
through a U.S. sales office. Individual A, who is a
nonresident alien within the meaning of section
7701(b)(1)(B) and has a tax home in the United
States, manufactures machinery in a foreign coun-
try and sells the machinery outside the United States
through A’s sales office in the United States for use
in foreign countries. A is not a nonresident with-
in the meaning of section 865(g)(1)(B). Therefore,
§1.865-3 does not apply to A’s sale of the machinery,
except to the extent provided in paragraph (c)(2) of
this section. Title to the property sold is transferred
to the foreign purchaser outside the United States,
but no office or other fixed place of business of A
in a foreign country materially participates in the
sale made through A’s U.S. office. By reason of its

December 28, 2020 1782 Bulletin No. 2020–53
sales activities in the United States, A is engaged in
business in the United States during the taxable year.
During the taxable year, A derives a total income of
$250,000x from these sales. Under paragraph (c)(2)
of this section, the amount of income that is allocable
to A’s U.S. office is determined under §1.865-3(d)
(2). The taxpayer does not allocate income from the
sale under the books and records method described
in §1.865-3(d)(2)(ii). Thus, 50 percent of A’s foreign
source income of $250,000x, plus any additional
income allocable based on the location of produc-
tion activities under §§1.865-3(d)(2)(i) and 1.863-3
(in this case, $0x), is effectively connected for the
taxable year with the conduct of A’s U.S. trade or
business, or $125,000x.
(ii) Example 2. Sales of inventory purchased and
resold through a U.S. sales office by a nonresident
alien with a tax home in the United States. Individu-
al B, who is a nonresident alien within the meaning
of section 7701(b)(1)(B) and has a tax home in the
United States, has an office in a foreign country that
purchases merchandise and sells it through B’s sales
office in the United States for use in various foreign
countries, with title to the property passing outside
the United States. B is not a nonresident within the
meaning of section 865(g)(1)(B). Therefore, §1.865-
3 does not apply to B’s sale of the merchandise, ex-
cept to the extent provided in paragraph (c)(2) of this
section. No other office of B materially participates
in these sales made through its U.S. office. By reason
of its sales activities in the United States, B is en-
gaged in business in the United States during the tax-
able year. During the taxable year, B derives income
of $300,000x from these sales made through its U.S.
sales office. All of B’s income from these sales is
foreign source as B purchases the merchandise out-
side the United States and title to the merchandise
also passes outside the United States. The amount of
income properly allocable to B’s U.S. office deter-
mined under §1.865-3(d)(3) is $300,000x, and thus
$300,000x is effectively connected for the taxable
year with the conduct of B’s U.S. trade or business.
(iii) Example 3. Foreign sales office also materi-
ally participates in sale. The facts are the same as in
paragraph (c)(3)(ii) of this section (the facts in Ex-
ample 2), except that B also has an office in a foreign
country that is a material factor in the realization of
income from the sales made through B’s U.S. office.
No income from the sale of merchandise is allocable
to B’s U.S. sales office for the taxable year, by rea-
son of paragraph (b)(3)(i) of this section, and thus
none of the $300,000x is effectively connected for
the taxable year with the conduct of B’s U.S. trade
or business.
(iv) Example 4. Sales of inventory purchased and
resold through a U.S. sales office by a foreign cor-
poration. The facts are the same as in paragraph (c)
(3)(ii) of this section (the facts in Example 2), except
that B is a foreign corporation. B is a nonresident
within the meaning of section 865(g)(1)(B). The in-
come from such sales will be sourced in accordance
with §1.865-3(a) and (d)(3).
(4) Applicability date. Paragraph (c)
(2) of this section applies to taxable years
ending on or after December 23, 2019.
However, a taxpayer may apply paragraph
(c)(2) of this section in its entirety for tax-
able years beginning after December 31,
2017, and ending before December 23,
2019, provided that the taxpayer and all
persons related to the taxpayer (within
the meaning of section 267 or 707) ap-
ply paragraph (c)(2) of this section and
§§1.863-1(b), 1.863-2(b), 1.863-3, 1.863-
8(b)(3)(ii), 1.864-5(a) and (b), and 1.865-
3 in their entirety for the taxable year, and
once applied, the taxpayer and all persons
related to the taxpayer (within the mean-
ing of section 267 or 707) continue to ap-
ply these regulations in their entirety for
all subsequent taxable years. For regula-
tions generally applicable to taxable years
ending before December 23, 2019, see
§1.864-6 as contained in 26 CFR part 1
revised as of April 1, 2020.
Par. 10. Section 1.865-3 is added to
read as follows:
§1.865-3 Source of gross income from
sales of personal property (including
inventory property) by a nonresident
attributable to an office or other fixed
place of business in the United States.
(a) In general. Notwithstanding any
provision of section 861 through 865 or
other regulations in this part, this section
provides the sole sourcing rules for gross
income, gain, or loss from section 865(e)
(2) sales. Gross income, gain, or loss from
a section 865(e)(2) sale is U.S. source in-
come to the extent that the gross income,
gain, or loss is properly allocable to an of-
fice or other fixed place of business in the
United States under paragraph (d) of this
section.
(b) Exception for certain inventory
sales for use, disposition or consumption
outside the United States. A section 865(e)
(2) sale does not include any sale of inven-
tory property that is sold for use, dispo-
sition, or consumption outside the United
States if an office or other fixed place of
business of the nonresident in a foreign
country materially participates in the sale.
See §1.864-6(b)(3) to determine whether
a foreign office materially participates in
the sale and whether the property was des-
tined for foreign use.
(c) Section 865(e)(2) sales. For pur-
poses of this section, a “section 865(e)(2)
sale” is a sale of personal property by a
nonresident, including inventory property,
other than a sale described in paragraph
(b) of this section, that is attributable to
an office or other fixed place of business
in the United States under the principles
of section 864(c)(5)(B) as prescribed in
§1.864-6(b)(1) and (2). In determining
whether a nonresident maintains an of-
fice or other fixed place of business in the
United States, the principles of section
864(c)(5)(A) as prescribed in §1.864-7
apply, including the rules of paragraph (d)
of that section regarding the office or oth-
er fixed place of business of a dependent
agent of the nonresident. For purposes of
this section, “inventory property” has the
meaning provided in section 865(i)(1),
and “nonresident” has the meaning pro-
vided in section 865(g)(1)(B).
(d) Amount of gross income, gain, or
loss on sale of personal property prop-
erly allocable to a U.S. office—(1) In
general. Except as otherwise provided in
paragraphs (d)(2) through (4) of this sec-
tion, the amount of gross income, gain,
or loss from a section 865(e)(2) sale that
is properly allocable to an office or oth-
er fixed place of business in the United
States is determined under the principles
of §1.864-6(c)(1).
(2) Produced inventory property. Gross
income, gain, or loss from a section 865(e)
(2) sale of inventory property that is pro-
duced by the nonresident seller is properly
allocable to an office or other fixed place
of business in the United States or to pro-
duction activities in accordance with the
“50/50 method” described in paragraph
(d)(2)(i) of this section. However, in lieu
of the 50/50 method, the nonresident sell-
er may elect to allocate the gross income,
gain, or loss under the “books and records
method” described in paragraph (d)(2)
(ii)(A) of this section, provided that the
nonresident satisfies all of the require-
ments described in paragraph (d)(2)(ii)
(B) of this section to the satisfaction of the
Commissioner. Gross income allocable
to production activities under this para-
graph (d)(2) is sourced in accordance with
§1.863-3. For purposes of this paragraph
(d)(2), the term “produced” includes cre-
ated, fabricated, manufactured, extracted,
processed, cured, and aged, as determined
under the principles of §1.954-3(a)(4) (ex-
cept for §1.954-3(a)(4)(iv)). See section
864(a) and §1.864-1.
(i) The 50/50 method. Fifty percent of
the gross income, gain, or loss from a sec-

Bulletin No. 2020–53 1783 December 28, 2020
tion 865(e)(2) sale of inventory property
that is produced by the nonresident seller
is properly allocable to an office or oth-
er fixed place of business in the United
States, and the remaining 50 percent of
the gross income, gain, or loss is proper-
ly allocable to production activities (the
“50/50 method”).
(ii) Books and records method—(A)
Method. Subject to paragraph (d)(2)(ii)(B)
of this section, a nonresident may elect to
determine the amount of its gross income,
gain, or loss from the sale of inventory
property produced by the nonresident sell-
er that is properly allocable to production
activities and sales activities for the tax-
able year based upon its books of account
(the “books and records method”). The
gross income, gain, or loss allocable to
sales activities under this method is treat-
ed as properly allocable to an office or
other fixed place of business in the United
States and the remaining gross income,
gain, or loss is treated as properly alloca-
ble to production activities.
(B) Election and reporting rules—(1)
In general. A nonresident may not make
the election described in paragraph (d)
(2)(ii)(A) of this section unless the re-
quirements of paragraphs (d)(2)(ii)(B)(2)
through (4) of this section are satisfied.
Once the election is made, the nonresident
must continue to satisfy the requirements
of paragraphs (d)(2)(ii)(B)(2) through
(4) of this section until the election is
revoked. If the nonresident fails to satis-
fy the requirements in paragraphs (d)(2)
(ii)(B)(2) through (4) of this section to
the satisfaction of the Commissioner, the
Commissioner may, in its sole discretion,
apply the 50/50 method described in para-
graph (d)(2)(i) of this section.
(2) Books of account. The nonresident
must establish that it, in good faith and
unaffected by considerations of tax lia-
bility, regularly employs in its books of
account a detailed allocation of receipts
and expenditures that, under the princi-
ples of section 482, clearly reflects both
the amount of the nonresident’s gross
income, gain, or loss from its inventory
sales that are attributable to its sales activ-
ities, and the amount of its gross income,
gain, or loss from its inventory sales that
are attributable to its production activities.
For purposes of this paragraph (d)(2)(ii)
(B)(2), section 482 principles apply as if
the office or other fixed place of business
in the United States were a separate or-
ganization, trade, or business (and, thus,
a separate controlled taxpayer) from the
nonresident (whether or not payments are
made between the United States office or
other fixed place of business and the non-
resident’s other offices, and whether or
not the nonresident itself would otherwise
constitute an organization, trade, or busi-
ness).
(3) Required records. The nonresi-
dent must prepare and maintain the re-
cords described in paragraph (d)(2)(ii)
(B)(2) of this section, which must be in
existence when its return is filed. The
nonresident must also prepare an ex-
planation of how the allocation clearly
reflects the nonresident’s gross income,
gain, or loss from production and sales
activities under the principles of section
482. The nonresident must make avail-
able the explanation and records of the
nonresident (including for the office or
other fixed place of business in the Unit-
ed States and the offices or branches that
perform the production activities) upon
request of the Commissioner, within 30
days, unless some other period is agreed
upon between the Commissioner and the
nonresident.
(4) Making and revoking the books
and records method election; disclosure
of election. Except as otherwise provid-
ed in publications, forms, instructions, or
other guidance, a nonresident makes or re-
vokes the election to apply the books and
records method by attaching a statement
to its original timely filed Federal income
tax return (including extensions) provid-
ing that it elects, or revokes the election,
to apply the books and records method
described in paragraph (d)(2)(ii)(A) of
this section. For nonresidents making the
election, the statement must provide that
the nonresident has prepared the records
described in paragraph (d)(2)(ii)(B)(2)
and (3) of this section.
(5) Limitation on revoking the books
and records method election. Once made,
the books and records method election
continues until revoked. An election can-
not be revoked, without the consent of the
Commissioner, for any taxable year be-
ginning within 48 months of the last day
of the taxable year for which the election
was made.
(3) Purchased inventory property. All
gross income, gain, or loss from a section
865(e)(2) sale of inventory property that
is both purchased and sold by a nonresi-
dent is properly allocable to an office or
other fixed place of business in the United
States.
(4) Depreciable personal property.
Gain from a section 865(e)(2) sale of de-
preciable personal property (as defined in
section 865(c)(4)) is allocated under para-
graphs (d)(4)(i) and (ii) of this section.
(i) The gain not in excess of the depre-
ciation adjustments, if any, is properly al-
locable to an office or other fixed place of
business in the United States to the same
extent that the gain would be allocated to
sources within the United States under the
rules of section 865(c)(1). The remaining
gain not in excess of the depreciation ad-
justments, if any, is allocated to sources
without the United States in accordance
with section 865(c)(1). However, not-
withstanding the preceding sentences, if
the property was predominantly used in
the United States, within the meaning of
section 865(c)(3)(B)(i), for a particular
taxable year, all of the gain not in excess
of depreciation for that year is properly al-
locable to the office or other fixed place of
business in the United States.
(ii) The gain in excess of the depreci-
ation adjustments, if any, is treated as if
such gain was from the sale of invento-
ry and the amount allocable to an office
or fixed place of business in the United
States is determined under paragraph (d)
(2) or (3) of this section, as applicable.
(e) Determination of source of taxable
income. For rules allocating and appor-
tioning expenses to gross income effec-
tively connected with the conduct of a
trade or business of a foreign corporation
in the United States (including gross in-
come, gain, or loss sourced under this
section), see section 882(c)(1). For rules
allocating and apportioning expenses to
gross income, gain, or loss effectively
connected with the conduct of a trade or
business of a nonresident alien in the Unit-
ed States (including gross income, gain, or
loss sourced under this section), see sec-
tion 873(a).
(f) Export trade corporations. This
section does not apply for purposes of de-
fining an export trade corporation under
section 971(a).

December 28, 2020 1784 Bulletin No. 2020–53
(g) Applicability date. This section ap-
plies to taxable years ending on or after
December 23, 2019. However, a nonresi-
dent may apply this section in its entirety
for taxable years beginning after Decem-
ber 31, 2017, and ending before December
23, 2019, provided that the nonresident
and all persons related to the nonresi-
dent (within the meaning of section 267
or 707) apply this section and §§1.863-
1(b), 1.863-2(b), 1.863-3, 1.863-8(b)(3)
(ii), 1.864-5(a) and (b), and 1.864-6(c)(2)
in their entirety for the taxable year, and
once applied, the nonresident and all per-
sons related to the nonresident (within the
meaning of section 267 or 707) continue
to apply these regulations in their entirety
for all subsequent taxable years.
§1.937-2 [Amended]
Par. 11. In §1.937-2 amend paragraph
(d) by removing “§1.863-3(f)” and adding
in its place “§1.863-3(e)”.
§1.937-3 [Amended]
Par. 12. In §1.937-3 amend paragraph
(d) by removing “§1.863-3(f)” and adding
in its place “§1.863-3(e)”.
Par. 13. Section 1.1502-13 is amended
by revising paragraph (c)(7)(ii)(N) to read
as follows:
§1.1502-13 Intercompany transactions.
* * * * *
(c) * * *
(7) * * *
(ii) * * *
(N) Example (14): Source of income under sec-
tion 863—(1) Intercompany sale—(i) Facts. S man-
ufactures inventory property solely in the United
States and recognizes $75x of income on sales to B
in Year 1. B conducts further production activity on
the inventory property solely in Country Y and then
sells the inventory property to X in Country Y and
recognizes $25x of income on the sale to X, also in
Year 1. Title passes from S to B, and from B to X, in
Country Y. Assume that applying §1.863-3 on a sin-
gle entity basis, including the formula for apportion-
ment of multi-country production activities by ref-
erence to the basis of production assets, $10x would
be treated as foreign source income and $90x would
be treated as U.S. source income (that is, 10 percent
of the production occurred outside the United States
and 90 percent occurred within the United States, as
measured by the basis of assets used in production
activities with respect to the property). Assume fur-
ther that, on a separate entity basis, S would have $0x
of foreign source income and $75x of U.S. source
income and all of B’s $25x of income would be for-
eign source income.
(ii) Analysis. Under the matching rule, both S’s
$75x intercompany item and B’s $25x corresponding
item are taken into account in Year 1. In determining
the source of S and B’s income from the invento-
ry property sales, the attributes of S’s intercompany
item and B’s corresponding item are redetermined to
the extent necessary to produce the same effect on
consolidated taxable income (and consolidated tax
liability) as if S and B were divisions of a single cor-
poration. See paragraph (c)(1)(i) of this section. On
a single entity basis, S and B would have $10x that
would be treated as foreign source income and $90x
that would be treated as U.S. source income, but
without application of this section (that is, on a sepa-
rate entity basis), S would have $75x of U.S. source
income and B would have $25x of foreign source
income. Under paragraph (c)(4)(ii) of this section, a
redetermined attribute must be allocated between S
and B using a reasonable method. On a separate en-
tity basis B would have only foreign source income
and S would have only U.S. source income. Accord-
ingly, under paragraph (c)(1)(i) of this section, $15x
of B’s $25x sales income that would be treated as
foreign source income on a separate entity basis is
redetermined to be U.S. source income.
(2) Sale of property reflecting intercompany
services or intangibles—(i) Facts. S earns $10x of
income performing services in the United States for
B. B capitalizes S’s fees into the basis of inventory
property that it manufactures in the United States
and sells to an unrelated person in Year 1 at a $90x
profit, with title passing in Country Y. Assume that
on a single entity basis, $100x is treated as U.S.
source income and $0x is treated as foreign source
income. Further assume that on a separate entity ba-
sis, S would have $10x of U.S. source income, and B
would have $90x of U.S. source income, with neither
having any foreign source income.
(ii) Analysis. Under the matching rule, S’s $10x
income and B’s $90x income are taken into account
in Year 1. In determining the source of S and B’s
income, the attributes of S’s intercompany item and
B’s corresponding item are redetermined to the ex-
tent necessary to produce the same effect on consoli-
dated taxable income (and consolidated tax liability)
as if S and B were divisions of a single corporation.
Because the results are the same on a single enti-
ty basis and a separate entity basis ($100x of U.S.
source income and $0x of foreign source income),
the attributes are not redetermined under paragraph
(c)(1)(i) of this section.
Sunita Lough,
Deputy Commissioner for Services
and Enforcement.
Approved: September 21, 2020
David J. Kautter,
Assistant Secretary of the Treasury
(Tax Policy).
(Filed by the Office of the Federal Register on
December 10, 2020, 8:45 a.m., and published in the
issue of the Federal Register for December 11, 2020,
85 F.R. 79837)

Bulletin No. 2020–53 1785 December 28, 2020
Part III
Work Opportunity Tax
Credit (WOTC) Transition
Relief under Internal
Revenue Code § 51
Notice 2020-78
I. PURPOSE
This notice provides transition relief
for certain employers claiming the Work
Opportunity Tax Credit (WOTC) under
§ 51 of the Internal Revenue Code (Code).
Specifically, this notice provides transition
relief by extending the 28-day deadline for
employers described in section IV of this
notice to request certification from a des-
ignated local agency (DLA)
1
that an indi-
vidual hired on or after January 1, 2018,
and before January 1, 2021, is a member
of the designated community resident tar-
geted group or the qualified summer youth
employee targeted group.
II. BACKGROUND
Section 51(a) of the Code provides the
WOTC to employers based on a percent-
age of qualified wages paid during the tax-
able year. Section 51(b) defines “qualified
wages” as wages paid or incurred by an
employer during the taxable year to an in-
dividual who is certified as a member of a
targeted group. Section 51(d)(1) lists the
targeted groups, which include designated
community residents defined in § 51(d)(5)
and qualified summer youth employees
defined in § 51(d)(7).
Pursuant to § 51(d)(13)(A), an individ-
ual is not treated as a member of a target-
ed group unless (1) on or before the day
the individual begins work, the employer
obtains certification from the DLA that
the individual is a member of a targeted
group, or (2) the employer completes a
pre-screening notice on or before the day
the individual is offered employment and
submits such notice to the DLA to request
certification not later than 28 days after
the individual begins work. The Form
8850 (Pre-Screening Notice and Certifi-
cation Request for the Work Opportunity
Credit) is the pre-screening notice that
must be submitted to the DLA to request
certification.
Among the requirements for an in-
dividual to be certified as a member of
a targeted group described in § 51(d)(5)
or (7), the individual must be certified by
the DLA as having a principal place of
residence within an empowerment zone
2

where the individual continuously resides.
Any wages paid to or incurred on behalf
of the individual for services rendered
while the individual is not living at a res-
idence within an empowerment zone do
not qualify for the WOTC.
III. TAXPAYER CERTAINTY AND
DISASTER TAX RELIEF ACT
AMENDMENTS
The WOTC has been subject to several
legislative extensions and modifications
since its enactment by § 1201 of the Small
Business Job Protection Act of 1996, Pub.
L. 104-188, 110 Stat. 1755 (August 20,
1996). Most recently, the Taxpayer Cer-
tainty and Disaster Tax Relief Act (Act),
enacted as Division Q of the Further Con-
solidated Appropriations Act, 2020, Pub.
L. 116-94, 133 Stat. 2534, 3226 (Decem-
ber 19, 2019), amended § 51 of the Code
to extend the WOTC through December
31, 2020.
Specifically, § 143 of the Act amend-
ed § 51(c)(4) of the Code to extend the
WOTC for an employer that hires individ-
uals who are members of a targeted group
with respect to wages paid or incurred to
such individuals who begin work for the
employer after December 31, 2019, but
not after December 31, 2020.
In addition, § 118(a) of the Act amend-
ed § 1391(d)(1) of the Code to provide
that any designation of an empowerment
zone ends on the earliest of (1) December
31, 2020, (2) the termination date desig-
nated by the State and local governments
as provided for in their nomination, or (3)
the date the appropriate Secretary
3
revokes
the designation. Section 118(b) of the Act
provides that where a nomination of an
empowerment zone included a termina-
tion date of December 31, 2017, § 1391(d)
(1)(B) of the Code will not apply with re-
spect to such designation if, after the date
of the enactment of the Act, the entity that
made such nomination amends the nomi-
nation, in such manner as the Secretary of
the Treasury may provide, to provide for
a new termination date. The amendment
made by § 118(a) of the Act applies to tax-
able years beginning after December 31,
2017.
On June 11, 2020, the Department
of the Treasury (Treasury Department)
and the Internal Revenue Service (IRS)
issued Revenue Procedure 2020-16,
2020-27 IRB 10, to explain how a State
or local government is deemed to ex-
tend the termination date designated in
an empowerment zone nomination until
December 31, 2020. Revenue Procedure
2020-16 provides that if a State or local
government did not submit a written dec-
lination to the IRS by August 10, 2020,
and if the appropriate Secretary did not
revoke the empowerment zone designa-
tion, then the termination date provided
in that empowerment zone nomination is
automatically extended to December 31,
2020.
IV. GRANT OF RELIEF
Because the Act extended the WOTC
through December 31, 2020, and retroac-
tively extended the period for which an
empowerment zone designation is in ef-
fect under § 1391(d)(1) from December
31, 2017, to December 31, 2020, employ-
ers need additional time to comply with
the DLA certification requirements of
§ 51(d)(13)(A)(ii).
The Treasury Department and the IRS
understand that, due to the expiration of
empowerment zone designations at the
1
Section 51(d)(12) provides that a “DLA” is a State employment security agency (sometimes referred to as a State Workforce Agency) established in accordance with 29 U.S.C. §§ 49-49n.
2
Section 1393(b) provides that for purposes of the Code, the term “empowerment zone” means an area designated as such under § 1391.
3
Section 1393(a)(1) of the Code defines the term “appropriate Secretary” as the Secretary of Housing and Urban Development (in the case of any nominated area designated under § 1391
that is located in an urban area as defined in § 1393(a)(3)) or the Secretary of Agriculture (in the case of any nominated area designated under § 1391 that is located in a rural area as defined
in § 1393(a)(2)).

December 28, 2020 1786 Bulletin No. 2020–53
end of 2017 and the uncertainty of wheth-
er empowerment zone designations would
be extended, some employers that hired
members of targeted groups described in
§ 51(d)(5) and (7) may not have submitted
Form 8850 to the DLA within 28 days of
the individual beginning work. To be el-
igible for the relief provided by this no-
tice, an employer that did not submit Form
8850 to the DLA within 28 days of an in-
dividual beginning work must submit the
completed Form 8850 to the DLA by the
date set forth in section IV.A of this notice.
In addition, the Treasury Department and
the IRS are aware that some employers that
hired members of targeted groups described
in § 51(d)(5) and (7) may have submitted
Form 8850 to the DLA within 28 days of
an individual beginning work, regardless
of the expiration of the empowerment zone
designations. To be eligible for the relief
provided by this notice, an employer that
submitted Form 8850 to the DLA and sub-
sequently received a denial letter from the
DLA by reason of the expiration of the em-
powerment zone designations must re-sub-
mit the completed Form 8850 by the date
set forth in section IV.A of this notice. In
the event that an employer submitted Form
8850 to the DLA and was not issued a deni-
al letter by the DLA, the employer does not
need to re-submit Form 8850 to be eligible
for the relief provided in this notice.
For these reasons, the Treasury Depart-
ment and the IRS are providing employers
with additional time to submit Form 8850
with the DLAs in accordance with the fol-
lowing timeframe.
A. Additional time for employers that
hired or hire designated community
residents or qualified summer youth
employees between January 1, 2018,
and December 31, 2020, to submit a
completed Form 8850 to the DLA.
An employer that hired an individual
who is a designated community resident
described in § 51(d)(5), or a qualified sum-
mer youth employee described in § 51(d)
(7), and who began work for that employ-
er on or after January 1, 2018, and before
January 1, 2021, will be considered to
have satisfied the requirements of § 51(d)
(13)(A)(ii), whether or not the employer
submitted the completed Form 8850 to the
DLA within 28 days of the individual be-
ginning work for the employer, if the em-
ployer submits the completed Form 8850
to the DLA to request certification no later
than January 28, 2021. In the event that
an employer submitted Form 8850 to the
DLA and was not issued a denial notifica-
tion by the DLA, the employer does not
need to re-submit Form 8850.
B. Application of 28-day requirement
to individuals hired on or after
January 1, 2021.
An employer that hires a member of a
targeted group described in § 51(d)(5) or
(7), who begins work for the employer on
or after January 1, 2021, is not eligible for
the transition relief described in this no-
tice with respect to that new employee.
V. EFFECTIVE DATE
The effective date of this notice is De-
cember 11, 2020.
VI. DRAFTING INFORMATION
The principal author of this notice is
Christopher Dellana of the Office of Asso-
ciate Chief Counsel (Employee Benefits,
Exempt Organizations, and Employment
Taxes). For further information regarding
the WOTC, contact Mr. Dellana at (202)
317-5500 (not a toll-free number).
Guidance on Sections 102
and 103 of the SECURE
Act With Respect to Safe
Harbor Plans
Notice 2020-86
I. PURPOSE
This notice provides guidance in the
form of questions and answers with re-
spect to §§ 102 and 103 of Division O of
the Further Consolidated Appropriations
Act, 2020, Pub. L. 116-94, 133 Stat. 2534
(2019), known as the Setting Every Com-
munity Up for Retirement Enhancement
Act of 2019 (SECURE Act).
1
Section
102 of the SECURE Act increases the 10
percent cap for automatic enrollment safe
harbor plans. Section 103 of the Secure
Act eliminates certain safe harbor notice
requirements for plans that provide for
safe harbor nonelective contributions and
adds new provisions for the retroactive
adoption of safe harbor status for those
plans. This notice is not intended to pro-
vide comprehensive guidance as to § 102
or 103 of the SECURE Act, but rather is
intended to assist taxpayers by providing
guidance on particular issues while the
Treasury Department and the IRS develop
regulations to fully implement these sec-
tions of the SECURE Act. The Treasury
Department and the IRS invite comments
on the guidance in this notice and any oth-
er aspect of § 102 or 103 of the SECURE
Act.
II. BACKGROUND
A. Exemptions from Actual Deferral
Percentage (ADP) and Actual
Contribution Percentage (ACP) Testing
for Safe Harbor Plans
Under § 401(a)(4) of the Internal Rev-
enue Code (Code) and § 1.401(a)(4)-1(b)
(2), contributions or benefits provided un-
der a qualified retirement plan must not be
discriminatory in amount in favor of high-
ly compensated employees (HCEs), as de-
fined in § 414(q). Under § 401(k)(3) and
§ 1.401(k)-1(a)(4)(iv)(A) and (b)(1)(ii)
(A), a § 401(k) plan satisfies this require-
ment if elective contributions made on be-
half of eligible employees for a year satis-
fy the ADP test described in § 1.401(k)-2.
Under § 401(m)(2) and § 1.401(m)-1(a)
(1)(i) and (b)(1)(i), a similar test, the ACP
test, applies to matching contributions and
employee contributions.
As an alternative to satisfying the an-
nual ADP test, a plan may satisfy the ADP
safe harbor provisions of § 401(k)(12) (a
1
On September 2, 2020, the Department of the Treasury (Treasury Department) and the Internal Revenue Service (IRS) released Notice 2020-68, 2020-38 IRB 567, which provides guidance
with respect to §§ 105, 107, 112, 113, 116, and 601 of the SECURE Act (and § 104 of Division M of the Further Consolidated Appropriations Act, 2020, known as the Bipartisan American
Miners Act of 2019).

Bulletin No. 2020–53 1787 December 28, 2020
traditional safe harbor § 401(k) plan) or
401(k)(13) (a qualified automatic contri-
bution arrangement (QACA) safe harbor
§ 401(k) plan). Similarly, as an alterna-
tive to satisfying the annual ACP test with
respect to matching contributions, a plan
may satisfy the ACP safe harbor provi-
sions of § 401(m)(11) (a traditional safe
harbor § 401(m) plan) or 401(m)(12) (a
QACA safe harbor § 401(m) plan).
B. Safe Harbor Contributions
Under § 1.401(k)-3(a)(1), a tradition-
al safe harbor § 401(k) plan is required
to satisfy the safe harbor contribution
requirements of either § 1.401(k)-3(b)
(safe harbor nonelective contributions)
or 1.401(k)-3(c) (safe harbor matching
contributions) for the plan year. Under
§ 1.401(k)-3(b) and (c), contributions
must be made on behalf of each eligible
employee who is not an HCE (NHCE).
Similarly, under § 1.401(m)-3(a)(1), a
traditional safe harbor § 401(m) plan is
required to satisfy the safe harbor contri-
bution requirements of either § 1.401(m)-
3(b), which cross-references the safe har-
bor nonelective contribution requirements
of § 1.401(k)-3(b), or 1.401(m)-3(c),
which cross-references the safe harbor
matching contribution requirements of
§ 1.401(k)-3(c), for the plan year.
Under § 1.401(k)-3(a)(2), a QACA
safe harbor § 401(k) plan is required to
satisfy the safe harbor contribution re-
quirements of § 1.401(k)-3(k) for the plan
year. Under § 1.401(k)-3(k)(1), a QACA
safe harbor § 401(k) plan must satisfy ei-
ther the safe harbor nonelective contribu-
tion requirements of § 1.401(k)-3(b) or the
safe harbor matching contribution require-
ments of § 1.401(k)-3(c), as modified by
§ 1.401(k)-3(k)(2) and (3). Similarly, un-
der § 1.401(m)-3(a)(2), a QACA safe har-
bor § 401(m) plan is required to satisfy the
safe harbor requirements of § 1.401(k)-3,
including the safe harbor contribution re-
quirements of § 1.401(k)-3(k).
Subject to certain requirements, a plan
that provides for safe harbor contributions
also may provide for contributions that are
not safe harbor contributions.

For exam-
ple, a traditional safe harbor § 401(k) plan
that provides for safe harbor nonelective
contributions may also provide for either
(1) a discretionary matching contribution
of four percent of safe harbor compensa-
tion that would not need to satisfy the ACP
test because the contribution satisfies the
requirements of § 1.401(m)-3(d) (includ-
ing the limits on matching rate increases,
matching contributions, and matching
rates on behalf of HCEs as compared to
matching rates on behalf of NHCEs), or
(2) a discretionary matching contribution
in excess of four percent of safe harbor
compensation that would need to satis-
fy the ACP test because the contribution
does not satisfy the limit on discretionary
matching contributions under § 1.401(m)-
3(d)(3)(ii). Under § 1.401(k)-3(a)(3), nei-
ther of these types of additional matching
contributions are referred to as safe harbor
contributions.
C. Safe Harbor Notices
Section 401(k)(12)(D) generally re-
quires a traditional safe harbor § 401(k)
plan to provide a safe harbor notice to
each eligible employee “within a rea-
sonable period before any year.” Section
1.401(k)-3(d)(3)(i) clarifies that a safe
harbor notice must be “provided within a
reasonable period before the beginning of
the plan year (or, in the year an employee
becomes eligible, within a reasonable pe-
riod before the employee becomes eligi-
ble).” Section 401(m)(11)(A)(ii) requires
a traditional safe harbor § 401(m) plan to
satisfy the safe harbor notice requirements
of § 401(k)(12)(D).
Section 401(k)(13)(E)(i) similarly re-
quires a QACA safe harbor § 401(k) plan to
provide a safe harbor notice to each eligi-
ble employee “within a reasonable period
before each plan year,” and § 1.401(k)-3(a)
(2) requires a QACA safe harbor § 401(k)
plan to satisfy the safe harbor notice re-
quirements of § 1.401(k)-3(d), as modi-
fied by § 1.401(k)-3(k)(4). Section 401(m)
(12)(A) requires a QACA safe harbor
§ 401(m) plan to satisfy the requirements
for a QACA safe harbor § 401(k) plan.
D. Mid-Year Changes to Safe Harbor
Plans and Notices
Section 1.401(k)-3(e)(1) provides that,
in general, a plan will fail to satisfy the
requirements of § 401(k)(12) and (13)
and § 1.401(k)-3 unless plan provisions
that satisfy the safe harbor plan rules of
§ 1.401(k)-3 are adopted before the first
day of the plan year and remain in effect
for an entire 12-month plan year. In ad-
dition, § 1.401(k)-3(e)(1) provides that,
except as provided in § 1.401(k)-3(g) or
in guidance of general applicability pub-
lished in the Internal Revenue Bulletin, a
plan that includes provisions that satisfy
the safe harbor plan rules of § 1.401(k)-3
will not satisfy the nondiscrimination re-
quirements for § 401(k) plans for a plan
year if the plan is amended to change
those provisions during the plan year. Sec-
tion 1.401(m)-3(f) includes similar rules
for safe harbor § 401(m) plans.
Under § 1.401(k)-3(g), a plan that pro-
vides for safe harbor contributions for a
plan year may be amended during the plan
year to reduce or suspend future safe har-
bor matching contributions or safe harbor
nonelective contributions if the plan is
also amended to provide that the ADP test
will be satisfied for the entire plan year in
which the reduction or suspension occurs
(using the current year testing method)
and if certain other requirements are satis-
fied. Section 1.401(k)-3(g)(1)(i) sets forth
the requirements for a mid-year reduction
or suspension of safe harbor matching
contributions, and § 1.401(k)-3(g)(1)(ii)
sets forth the requirements for a mid-year
reduction or suspension of safe harbor
nonelective contributions.
Under § 1.401(k)-3(g)(1)(i)(A) and (ii)
(A), the employer must either (1) be op-
erating at an economic loss (as described
in § 412(c)(2)(A)) for the plan year, or
(2) have included in the plan’s safe harbor
notice (as described in § 1.401(k)-3(d))
for the plan year a statement that the plan
may be amended during the plan year to
reduce or suspend safe harbor contribu-
tions and that the reduction or suspension
will not apply earlier than 30 days after
all eligible employees are provided no-
tice of the reduction or suspension. Under
§ 1.401(k)-3(g)(1)(i)(C) and (ii)(C), the
reduction or suspension of safe harbor
contributions may be effective no earlier
than the later of the date the amendment is
adopted or 30 days after eligible employ-
ees are provided the supplemental notice
described in § 1.401(k)-3(g)(2). Under
§ 1.401(k)-3(g)(1)(i)(D) and (ii)(D), eligi-
ble employees must be given a reasonable
opportunity (including a reasonable period
after receipt of the supplemental notice)

December 28, 2020 1788 Bulletin No. 2020–53
prior to the reduction or suspension of safe
harbor contributions to change their cash
or deferred elections and, if applicable,
their employee contribution elections.
Section 1.401(m)-3(h) provides rules
similar to those of § 1.401(k)-3(g) for a
reduction or suspension of future safe har-
bor matching contributions or safe harbor
nonelective contributions in a safe harbor
§ 401(m) plan.
Notice 2016-16, 2016-7 IRB 318, pro-
vides guidance on mid-year changes to
safe harbor plans to the extent that con-
ditions for those mid-year changes are
not addressed in the Code or regulations
(including conditions for reducing or
suspending safe harbor contributions un-
der §§ 1.401(k)-3(g) and 1.401(m)-3(h)).
Section III.B of Notice 2016-16 provides
that a change made to a safe harbor plan
or to a plan’s required safe harbor notice
content does not fail to satisfy the require-
ments of §§ 1.401(k)-3 and 1.401(m)-3
merely because the change is a mid-year
change, provided that: (1) if it is a mid-
year change to a plan’s required safe har-
bor notice content, the notice and election
opportunity conditions in section III.C of
Notice 2016-16 are satisfied; and (2) the
mid-year change is not described in a list
of prohibited mid-year changes in section
III.D of Notice 2016-16. Section III.A of
Notice 2016-16 defines required safe har-
bor notice content as the information that
is required by the safe harbor plan regula-
tions to be provided in a plan’s safe harbor
notice. For example, a plan’s safe harbor
notice must describe any other contribu-
tions under the plan or matching contribu-
tions to another plan on account of elective
contributions or employee contributions
under the plan (including the potential for
discretionary matching contributions) and
the conditions under which such contribu-
tions are made. See § 1.401(k)-3(d)(2)(ii)
(B).
E. Section 102 of the SECURE Act
For a QACA safe harbor § 401(k) plan,
§ 401(k)(13)(C) generally requires that
each employee eligible to participate be
treated as having elected to have the em-
ployer make elective contributions in an
amount equal to a qualified percentage of
compensation (subject to certain excep-
tions for employees who have made or
make affirmative participation elections).
The qualified percentage of compensation
may be any percentage determined under
the plan if such percentage is applied uni-
formly, does not exceed the maximum per-
centage specified in § 401(k)(13)(C)(iii),
and satisfies certain minimum percentage
requirements specified in § 401(k)(13)
(C)(iii)(I) – (IV). For example, § 401(k)
(13)(C)(iii)(I) provides that the qualified
percentage must be at least three percent
during the initial period ending on the last
day of the first plan year that begins after
the date on which the first automatic elec-
tive contribution is made with respect to
an employee. Prior to the enactment of the
SECURE Act, § 401(k)(13)(C)(iii) of the
Code provided that the qualified percent-
age could not exceed 10 percent.
Section 102(a) of the SECURE Act
amended § 401(k)(13)(C)(iii) of the Code
to provide that the qualified percentage
may not exceed 15 percent (or 10 percent
during the initial period of automatic elec-
tive contributions described in § 401(k)
(13)(C)(iii)(I)).
Section 102(b) of the SECURE Act
provides that the amendments made by
§ 102 of the SECURE Act apply to plan
years beginning after December 31, 2019.
F. Section 103 of the SECURE Act
Prior to the enactment of the SECURE
Act, § 401(k)(12) required all tradition-
al safe harbor § 401(k) plans to satisfy
the safe harbor notice requirements of
§ 401(k)(12)(D), and § 401(k)(13) re-
quired all QACA safe harbor § 401(k)
plans to satisfy the safe harbor notice re-
quirements of § 401(k)(13)(E). In addi-
tion, § 401(k)(12) and (13) did not explic-
itly permit retroactive adoption of the safe
harbor nonelective contribution require-
ments of § 401(k)(12)(C) (traditional) or
401(k)(13)(D)(i)(II) (QACA) for a plan
year.
2

Section 103(a) of the SECURE Act
amended § 401(k)(12)(A) of the Code to
eliminate the safe harbor notice require-
ments of § 401(k)(12)(D) for a tradition-
al safe harbor § 401(k) plan that satisfies
the safe harbor nonelective contribution
requirements of § 401(k)(12)(C). Section
103(a) of the SECURE Act also amended
§ 401(k)(13)(B) of the Code to eliminate
the safe harbor notice requirements of
§ 401(k)(13)(E) for a QACA safe harbor
§ 401(k) plan that satisfies the safe harbor
nonelective contribution requirements of
§ 401(k)(13)(D)(i)(II).
Section 103(a) of the SECURE Act did
not amend § 401(m)(11) or 401(m)(12) of
the Code. Thus, § 401(m)(11)(A)(ii) con-
tinues to require all traditional safe harbor
§ 401(m) plans to satisfy the safe harbor
notice requirements of § 401(k)(12)(D).
Section 401(m)(12)(A) also continues to
require all QACA safe harbor § 401(m)
plans to satisfy the requirements for a
QACA safe harbor § 401(k) plan. Howev-
er, § 103(a) of the SECURE Act eliminat-
ed the safe harbor notice requirements of
§ 401(k)(13)(E) of the Code for a QACA
safe harbor § 401(k) plan that satisfies the
safe harbor nonelective contribution re-
quirements of § 401(k)(13)(D)(i)(II).
Section 103(b) of the SECURE Act
added new § 401(k)(12)(F) of the Code
to permit a plan to be amended after the
beginning of a plan year to provide that
the safe harbor nonelective contribution
requirements of § 401(k)(12)(C) will ap-
ply for the plan year, provided that: (1) the
amendment is adopted before the 30th day
before the close of the plan year (or before
the last day under § 401(k)(8)(A) for dis-
tributing excess contributions for the plan
year if the safe harbor nonelective contri-
bution for the plan year is at least four per-
cent of each employee’s compensation);
and (2) the plan did not provide, at any
time during the plan year, for safe harbor
matching contributions under § 401(k)
(12)(B) (traditional) or 401(k)(13)(D)(i)
(I) (QACA) for the plan year.
Section 103(c) of the SECURE Act
likewise amended the QACA safe harbor
§ 401(k) plan rules of § 401(k)(13) of the
2
Although § 401(k)(12) and (13) did not explicitly permit retroactive adoption of safe harbor nonelective contribution requirements, §§ 1.401(k)-3(f) and 1.401(m)-3(g) permit a plan that
provides for the use of the current year testing method to be retroactively amended to adopt a safe harbor design for the plan year, using safe harbor nonelective contributions, if certain
additional requirements are met (including contingent and follow-up notice requirements).

Bulletin No. 2020–53 1789 December 28, 2020
Code to add new § 401(k)(13)(F), which
provides rules similar to those of § 401(k)
(12)(F).
Section 103(d) of the SECURE Act
provides that the amendments made by
§ 103 of the SECURE Act apply to plan
years beginning after December 31, 2019.
III. GUIDANCE REGARDING
SECTION 102 OF THE SECURE ACT
(INCREASE IN 10 PERCENT CAP
FOR AUTO-ENROLLMENT SAFE
HARBOR)
Q-1. In order to maintain its status as
a QACA safe harbor § 401(k) plan, is a
QACA safe harbor § 401(k) plan required,
pursuant to § 102(a) of the SECURE Act,
to increase the maximum qualified per-
centage of compensation used to deter-
mine automatic elective contributions?
A-1. No. The qualified percentage un-
der a QACA safe harbor § 401(k) plan
may be any percentage of compensation
determined under the plan, as long as the
percentage is applied uniformly, does not
exceed the maximum percentage specified
in § 401(k)(13)(C)(iii) (15 percent, or 10
percent during the initial period of auto-
matic elective contributions described in
§ 401(k)(13)(C)(iii)(I)), and satisfies cer-
tain minimum percentage requirements
specified in § 401(k)(13)(C)(iii)(I) – (IV).
Q-2. If a plan incorporates the maxi-
mum qualified percentage of § 401(k)(13)
(C)(iii) by reference, will the plan fail to
operate in accordance with its terms mere-
ly because the plan continues to apply the
maximum qualified percentage of 10 per-
cent that applied under § 401(k)(13)(C)
(iii) of the Code before that section was
amended by § 102(a) of the SECURE Act?
A-2. No. However, the plan would
need to be amended on or before the plan
amendment deadline determined under
§ 601(b) of the SECURE Act,
3
as de-
scribed in Q&A G-1 of Notice 2020-68,
to provide explicitly that the plan’s max-
imum qualified percentage is 10 percent,
retroactive to the first day of the first plan
year beginning after December 31, 2019.
If a plan incorporates the maximum qual-
ified percentage of § 401(k)(13)(C)(iii)
of the Code by reference and the plan is
not amended on or before the plan amend-
ment deadline determined under § 601(b)
of the SECURE Act to provide a specific
maximum qualified percentage, then the
plan will be treated as providing for the
maximum qualified percentage specified
in § 401(k)(13)(C)(iii) of the Code, as
amended by § 102(a) of the SECURE Act,
effective as of the first day of the first plan
year beginning after December 31, 2019.
In this case, the plan will have failed to
operate in accordance with its terms by
applying the maximum qualified per-
centage of 10 percent that applied under
§ 401(k)(13)(C)(iii) of the Code before
that section was amended by § 102(a) of
the SECURE Act.
Q-3. What plan amendment timing
rules apply to a plan amendment that in-
creases the maximum qualified percentage
of compensation used to determine auto-
matic elective contributions to a percent-
age greater than 10 percent (but no greater
than 15 percent) after the initial period of
automatic elective contributions described
in § 401(k)(13)(C)(iii)(I)?
A-3. In general, the plan amendment
timing provisions of § 601 of the SE-
CURE Act, as described in Q&A G-1 of
Notice 2020-68, apply to a plan amend-
ment adopted under § 102 of the SECURE
Act. In addition, a plan may be amended
to reflect § 102 of the SECURE Act after
the applicable plan amendment deadline
under § 601 of the SECURE Act, in ac-
cordance with the general discretionary
amendment deadlines set forth in Rev.
Proc. 2016-37, 2016-29 IRB 136, as most
recently modified by Rev. Proc. 2020-40,
2020-38 IRB 575.
IV. GUIDANCE REGARDING
SECTION 103 OF THE SECURE
ACT (SAFE HARBOR NOTICE
REQUIREMENTS AND
RETROACTIVE SAFE HARBOR
STATUS FOR PLANS THAT PROVIDE
SAFE HARBOR NONELECTIVE
CONTRIBUTIONS)
Q-4. How does § 103(a) of the SE-
CURE Act affect the safe harbor notice
requirements for a traditional safe harbor
§ 401(k) plan or a traditional safe harbor
§ 401(m) plan?
A-4. Section 103(a) of the SECURE
Act amended the requirements for a tra-
ditional safe harbor § 401(k) plan that
satisfies the safe harbor nonelective con-
tribution requirements of § 401(k)(12)
(C) of the Code by eliminating the safe
harbor notice requirements of § 401(k)
(12)(D) (including the requirement under
§ 1.401(k)-3(d)(3)(i) to provide a safe har-
bor notice within a reasonable period be-
fore an employee becomes eligible). How-
ever, § 103(a) of the SECURE Act did not
eliminate the safe harbor notice require-
ments of § 401(m)(11)(A) of the Code for
a traditional safe harbor § 401(m) plan
that satisfies the safe harbor nonelective
contribution requirements of § 401(k)(12)
(C).
Thus, for example, if a traditional safe
harbor § 401(k) plan satisfies the safe har-
bor nonelective contribution requirements
of § 401(k)(12)(C), but also provides
non-safe harbor matching contributions
that are structured to satisfy the require-
ments of § 1.401(m)-3(d) (and, therefore,
are not required to satisfy the ACP test),
then the plan still must satisfy the safe har-
bor notice requirements of § 401(m)(11)
(A). On the other hand, if a traditional safe
harbor § 401(k) plan that satisfies the safe
harbor nonelective contribution require-
ments of § 401(k)(12)(C) also provides
non-safe harbor matching contributions
that are not intended to satisfy the require-
ments of § 1.401(m)-3(d) (and, therefore,
are required to satisfy the ACP test), then
the plan need not satisfy the safe harbor
notice requirements of either § 401(k)(12)
(D) or 401(m)(11)(A).
Q-5. How does § 103(a) of the SE-
CURE Act affect the safe harbor no-
tice requirements for a QACA safe har-
bor § 401(k) plan or QACA safe harbor
§ 401(m) plan?
A-5. Section 103(a) of the SECURE
Act amended the requirements for a
QACA safe harbor § 401(k) plan that sat-
isfies the safe harbor nonelective contri-
bution requirements of § 401(k)(13)(D)
(i)(II) of the Code by eliminating the safe
3
In general, for a qualified retirement plan that is not a governmental plan within the meaning of § 414(d) of the Code, or an applicable collectively bargained plan, the plan amendment
deadline determined under § 601 of the SECURE Act is the last day of the first plan year beginning on or after January 1, 2022. The plan amendment deadline for a qualified governmental
plan, as defined in § 414(d) of the Code, or for an applicable collectively bargained plan is the last day of the first plan year beginning on or after January 1, 2024.

December 28, 2020 1790 Bulletin No. 2020–53
harbor notice requirements of § 401(k)
(13)(E) (including the requirement under
§ 1.401(k)-3(d)(3)(i) to provide a notice
within a reasonable period before an em-
ployee becomes eligible). The amend-
ments made by § 103(a) of the SECURE
Act also result in the elimination of any
safe harbor notice requirement under
§ 401(m)(12) of the Code for a QACA
safe harbor § 401(m) plan that satisfies the
safe harbor nonelective contribution re-
quirements of § 401(k)(13)(D)(i)(II). The
result is different for a traditional safe har-
bor § 401(m) plan, as described in Q&A-4
of this notice, than for a QACA safe har-
bor § 401(m) plan because § 401(m)(11)
specifically requires a traditional safe har-
bor § 401(m) plan to satisfy the safe har-
bor notice requirements of § 401(k)(12)
(D), but § 401(m)(12)(A) merely requires
a QACA safe harbor § 401(m) plan to sat-
isfy the requirements for a QACA safe
harbor § 401(k) plan.
Q-6. Does § 103(a) of the SECURE
Act change any other requirements?
A-6. No. Section 103(a) of the SE-
CURE Act does not change any other re-
quirements that may apply to a plan that
satisfies the safe harbor nonelective contri-
bution requirements applicable to a tradi-
tional or QACA safe harbor § 401(k) plan
under § 401(k)(12)(C) or 401(k)(13)(D)
(i)(II) of the Code. For example, § 103(a)
of the SECURE Act did not change the
notice requirements under § 414(w)(4) of
the Code for a plan that permits, pursuant
to the eligible automatic contribution ar-
rangement rules of § 414(w), an employ-
ee to elect to withdraw automatic elective
contributions (and earnings) no later than
90 days after the date of the first elective
contribution with respect to the employee
under the eligible automatic contribution
arrangement. Accordingly, the § 414(w)
(4) notice requirements continue to apply
even if the plan satisfies the safe harbor
nonelective contribution requirements of
§ 401(k)(12)(C) or 401(k)(13)(D)(i)(II).
As another example, § 103(a) of the
SECURE Act did not change the require-
ment under § 1.401(k)-1(e)(2)(ii) that a
cash or deferred arrangement (including
an arrangement in a plan that satisfies the
safe harbor nonelective contribution re-
quirements of § 401(k)(12)(C) or 401(k)
(13)(D)(i)(II) of the Code) provide an
employee with an effective opportunity,
determined based on all the relevant facts
and circumstances, including the adequa-
cy of notice of the availability of a cash
or deferred election, to make (or change)
a cash or deferred election at least once
during each plan year.
Q-7. If a plan does not provide a safe
harbor notice for a plan year beginning
after December 31, 2019 (because, pur-
suant to § 103(a) of the SECURE Act
and Q&A-4 or Q&A-5 of this notice,
safe harbor notice requirements no lon-
ger apply to the plan), but the employer
nevertheless provides a notice that in-
cludes a statement that the plan may be
amended mid-year to reduce or suspend
safe harbor nonelective contributions, as
described in §§ 1.401(k)-3(g)(1)(ii)(A)(2)
and 1.401(m)-3(h)(1)(ii)(A)(2), and that
otherwise satisfies the requirements for a
safe harbor notice, will the plan fail to sat-
isfy the condition in § 1.401(k)-3(g)(1)(ii)
(A)(2) or 1.401(m)-3(h)(1)(ii)(A)(2) that
the statement regarding the possible mid-
year reduction or suspension of safe har-
bor nonelective contributions be included
in a safe harbor notice?
A-7. No. The plan will not fail to
satisfy § 1.401(k)-3(g)(1)(ii)(A)(2) or
1.401(m)-3(h)(1)(ii)(A)(2) merely be-
cause the employer included the statement
described in §§ 1.401(k)-3(g)(1)(ii)(A)
(2) and 1.401(m)-3(h)(1)(ii)(A)(2) in a
notice that otherwise satisfies the require-
ments for a safe harbor notice (rather than
in an actual safe harbor notice).
4
Further,
solely with respect to the first plan year
beginning after December 31, 2020, a
notice will be treated as satisfying the re-
quirement under §§ 1.401(k)-3(d)(3) and
1.401(m)-3(e) that the notice be provid-
ed within a reasonable period before the
beginning of the plan year if the notice
is given to each eligible employee by the
later of (1) 30 days before the beginning
of the plan year, or (2) January 31, 2021.
However, except as provided in Q&A-8 of
this notice, the plan must satisfy all other
requirements set forth in § 1.401(k)-3(g)
(1)(ii) or 1.401(m)-3(h)(1)(ii), as appli-
cable, in order to reduce or suspend safe
harbor nonelective contributions during
the plan year.
Q-8. If an employer amends a tradi-
tional or QACA safe harbor § 401(k) plan
(or a traditional or QACA safe harbor
§ 401(m) plan) to reduce or suspend the
plan’s safe harbor nonelective contribu-
tions during a plan year, but later amends
the plan to readopt the safe harbor non-
elective contributions in accordance with
§ 401(k)(12)(F) or 401(k)(13)(F) for the
entirety of the plan year, will the plan be
required to satisfy the ADP or ACP test (as
applicable) for the plan year or be subject
to the top-heavy rules under § 416 for the
plan year?
A-8. No. The retroactive plan amend-
ment provisions of §§ 401(k)(12)(F) and
401(k)(13)(F) of the Code, as amended by
§ 103 of the SECURE Act, are not condi-
tioned on whether a prior plan amendment
reduced or suspended safe harbor nonelec-
tive contributions during the plan year.
Accordingly, the plan will not be required
to satisfy either § 1.401(k)-3(g)(1)(ii)(E)
(ADP testing) or 1.401(m)-3(h)(1)(ii)(E)
(ACP testing) for the plan year and, pur-
suant to § 416(g)(4)(H) of the Code, the
plan will not be subject to the top-heavy
rules under § 416 for the plan year.
5

Q-9. If a plan is amended pursuant
to § 401(k)(12)(F)(i)(II) (traditional) or
401(k)(13)(F)(i)(II) (QACA) to adopt
safe harbor nonelective contributions of at
least four percent of compensation for a
plan year, and the safe harbor nonelective
contributions are contributed to the plan
after the tax filing deadline for the prior
taxable year (including extensions) but
before the last day under § 401(k)(8)(A)
for distributing excess contributions for
the plan year, are the safe harbor nonelec-
tive contributions deductible for the prior
taxable year?
A-9. No. Section 404(a)(6) provides
that a taxpayer will be deemed to have
made a payment on the last day of the
prior taxable year if the payment is on
account of that taxable year and is made
not later than the time prescribed by law
for filing the return for that taxable year
4
In addition, see section IV.A of Notice 2020-52, 2020-29 IRB 79, for certain temporary relief from the requirements of §§ 1.401(k)-3(g)(1)(ii)(A) and 1.401(m)-3(h)(1)(ii)(A).
5
However, for a plan that terminates during the plan year and has a final plan year of less than 12 months, the guidance provided in this Q&A-8 does not change the requirements under
§ 1.401(k)-3(e)(4) or § 1.401(m)-3(f)(4).

Bulletin No. 2020–53 1791 December 28, 2020
(including extensions). Therefore, the safe
harbor nonelective contributions are not
deductible for the prior taxable year be-
cause they are contributed to the plan after
the latest date permitted under § 404(a)
(6) for a contribution to be deductible for
the prior taxable year. However, the safe
harbor nonelective contributions are de-
ductible for the taxable year in which they
are contributed to the plan, to the extent
otherwise deductible under § 404.
Q-10. For plan years beginning after
December 31, 2019, do the retroactive
plan amendment requirements of § 401(k)
(12)(F) or 401(k)(13)(F) of the Code, as
amended by § 103 of the SECURE Act,
apply to an amendment adopted during
a plan year that adds the traditional or
QACA safe harbor design set forth in
§ 401(k)(12) or 401(k)(13) of the Code for
the plan year using safe harbor nonelective
contributions (rather than the retroactive
plan amendment rules in § 1.401(k)-3(f))?
A-10. Yes. Effective for plan years be-
ginning after December 31, 2019, in order
for a plan to be amended during a plan
year to adopt the safe harbor design set
forth in § 401(k)(12) or 401(k)(13) for the
plan year using safe harbor nonelective
contributions, the plan must satisfy the
retroactive plan amendment requirements
of § 401(k)(12)(F) or 401(k)(13)(F) of the
Code, as amended by § 103 of the SE-
CURE Act. Accordingly, the retroactive
plan amendment rules of § 1.401(k)-3(f)
no longer apply for those plan years.
Q-11. For plan years beginning after
December 31, 2019, do the retroactive
plan amendment requirements of § 401(k)
(13)(F) of the Code, as amended by § 103
of the SECURE Act, apply to an amend-
ment adopted during a plan year that
adds the safe harbor design set forth in
§ 401(m)(12) of the Code (QACA) for the
plan year using safe harbor nonelective
contributions (rather than the retroactive
plan amendment rules in § 1.401(m)-
3(g))?
A-11. Yes. Effective for plan years be-
ginning after December 31, 2019, in order
for a plan to be amended during a plan year
to adopt the safe harbor design set forth in
§ 401(m)(12) for the plan year using safe
harbor nonelective contributions, the plan
must satisfy the retroactive plan amend-
ment requirements of § 401(k)(13)(F) of
the Code, as amended by § 103 of the SE-
CURE Act. Accordingly, the retroactive
plan amendment rules of § 1.401(m)-3(g)
no longer apply for those plan years.
Q-12. For plan years beginning after
December 31, 2019, do the retroactive
plan amendment requirements of § 401(k)
(12)(F) of the Code, as amended by § 103
of the SECURE Act, apply to an amend-
ment adopted during a plan year that adds
the safe harbor design set forth in § 401(m)
(11) of the Code (traditional) for the plan
year using safe harbor nonelective contri-
butions (rather than the retroactive plan
amendment rules in § 1.401(m)-3(g))?
A-12. No. As described in Q&A-4
of this notice, § 103(a) of the SECURE
Act did not eliminate the safe harbor
notice requirements of § 401(m)(11)
(A) of the Code for a traditional safe
harbor § 401(m) plan that satisfies the
safe harbor nonelective contribution re-
quirements of § 401(k)(12)(C). Accord-
ingly, a plan sponsor must comply with
the retroactive plan amendment rules
of § 1.401(m)-3(g) (including both the
contingent and follow-up notice require-
ments under § 1.401(k)-3(f)) in order for
the plan to qualify as a safe harbor design
set forth in § 401(m)(11) after the begin-
ning of the plan year using safe harbor
nonelective contributions.
Q-13. What plan amendment timing
rules apply to a plan amendment that is
adopted after the beginning of a plan year
to provide that the safe harbor nonelective
contribution requirements of § 401(k)(12)
(C) (traditional) or 401(k)(13)(D)(i)(II)
(QACA) will apply for the plan year, in
accordance with § 103(b) or (c) of the SE-
CURE Act?
A-13. In general, the plan amendment
timing provisions of § 601 of the SE-
CURE Act, as described in Q&A G-1 of
Notice 2020-68, apply to a plan amend-
ment adopted under § 103(b) or (c) of
the SECURE Act (even if the applicable
plan amendment deadline under § 601 of
the SECURE Act is later than the dead-
line under § 103(b) or (c) of the SECURE
Act). In addition, a plan may be amend-
ed after the applicable plan amendment
deadline under § 601 of the SECURE Act,
in accordance with the plan amendment
provisions of § 103(b) or (c) of the SE-
CURE Act (which provide an exception
to the general discretionary amendment
deadlines set forth in Rev. Proc. 2016-37,
as most recently modified by Rev. Proc.
2020-40).
V. SECTION 403(b) PLANS
This notice applies on similar terms
to § 403(b) plans that apply the § 401(m)
safe harbor rules pursuant to § 403(b)(12).
VI. REQUEST FOR COMMENTS
The Treasury Department and the IRS
invite comments on the guidance in this
notice and any other aspect of § 102 or
103 of the SECURE Act.
Comments should be submitted in
writing on or before February 8, 2021,
and should include a reference to Notice
2020-86. Comments may be submitted in
one of two ways:
(1) Electronically via the Federal
eRulemaking Portal at www.regulations.
gov (type IRS-2020-0045 in the search
field on the regulations.gov homepage to
find this notice and submit comments).
(2) Alternatively, by mail to: Internal
Revenue Service, Attn: CC:PA:LPD:PR
(Notice 2020-86), Room 5203, P.O. Box
7604, Ben Franklin Station, Washington,
D.C. 20044.
All commenters are strongly encour-
aged to submit public comments electron-
ically. The IRS expects to have limited
personnel available to process public com-
ments that are submitted on paper through
mail. Until further notice, any comments
submitted on paper will be considered to
the extent practicable. The Treasury De-
partment and the IRS will publish for pub-
lic availability any comment submitted
electronically, and to the extent practica-
ble on paper, to its public docket.
VII. DRAFTING INFORMATION
The principal author of this notice
is Kara M. Soderstrom of the Office of
the Associate Chief Counsel (Employ-
ee Benefits, Exempt Organizations, and
Employment Taxes). However, other
personnel from the Treasury Department
and the IRS participated in the develop-
ment of this guidance. For further infor-
mation regarding this notice, contact Ms.
Soderstrom at (202) 317-6799 (not a toll-
free number).

December 28, 2020 1792 Bulletin No. 2020–53
Update for Weighted
Average Interest Rates,
Yield Curves, and Segment
Rates
Notice 2020-87
This notice provides guidance on the
corporate bond monthly yield curve, the
corresponding spot segment rates used
under § 417(e)(3), and the 24-month aver-
age segment rates under § 430(h)(2) of the
Internal Revenue Code. In addition, this
notice provides guidance as to the interest
rate on 30-year Treasury securities under
§ 417(e)(3)(A)(ii)(II) as in effect for plan
years beginning before 2008 and the 30-
year Treasury weighted average rate under
§ 431(c)(6)(E)(ii)(I).
YIELD CURVE AND SEGMENT
RATES
Section 430 specifies the minimum
funding requirements that apply to sin-
gle-employer plans (except for CSEC
plans under § 414(y)) pursuant to § 412.
Section 430(h)(2) specifies the inter-
est rates that must be used to determine
a plan’s target normal cost and funding
target. Under this provision, present val-
ue is generally determined using three
24-month average interest rates (“segment
rates”), each of which applies to cash
flows during specified periods. To the ex-
tent provided under § 430(h)(2)(C)(iv),
these segment rates are adjusted by the ap-
plicable percentage of the 25-year average
segment rates for the period ending Sep-
tember 30 of the year preceding the cal-
endar year in which the plan year begins.
1

However, an election may be made under
§ 430(h)(2)(D)(ii) to use the monthly yield
curve in place of the segment rates.
Notice 2007-81, 2007-44 I.R.B. 899,
provides guidelines for determining the
monthly corporate bond yield curve, and
the 24-month average corporate bond
segment rates used to compute the target
normal cost and the funding target. Con-
sistent with the methodology specified in
Notice 2007-81, the monthly corporate
bond yield curve derived from November
2020 data is in Table 2020-11 at the end
of this notice. The spot first, second, and
third segment rates for the month of No-
vember 2020 are, respectively, 0.53, 2.31,
and 3.09.
The 24-month average segment rates
determined under § 430(h)(2)(C)(i)
through (iii) must be adjusted pursuant to
§ 430(h)(2)(C)(iv) to be within the appli-
cable minimum and maximum percentag-
es of the corresponding 25-year average
segment rates. For plan years beginning
before 2021, the applicable minimum per-
centage is 90% and the applicable maxi-
mum percentage is 110%. For plan years
beginning in 2021, the applicable mini-
mum percentage is 85% and the applica-
ble maximum percentage is 115%. The
25-year average segment rates for plan
years beginning in 2019, 2020, and 2021
were published in Notice 2018-73, 2018-
40 I.R.B. 526, Notice 2019-51, 2019-41
I.R.B. 866, and Notice 2020-72, 2020-40
I.R.B. 789, respectively.
24-MONTH AVERAGE CORPORATE
BOND SEGMENT RATES
The three 24-month average corporate
bond segment rates applicable for Decem-
ber 2020 without adjustment for the 25-
year average segment rate limits are as
follows:
24-Month Average Segment Rates Without 25-Year Average Adjustment
Applicable Month First Segment Second Segment Third Segment
December 2020 1.87 3.12 3.72
Based on § 430(h)(2)(C)(iv), the
24-month averages applicable for Decem-
ber 2020, adjusted to be within the appli-
cable minimum and maximum percentag-
es of the corresponding 25-year average
segment rates, are as follows:
Adjusted 24-Month Average Segment Rates
For Plan Years
Beginning In
Applicable
Month
First
Segment
Second
Segment
Third
Segment
2019December 20203.745.356.11
2020December 20203.645.215.94
2021December 20203.324.795.47
30-YEAR TREASURY SECURITIES
INTEREST RATES
Section 431 specifies the minimum
funding requirements that apply to mul-
tiemployer plans pursuant to § 412. Sec-
tion 431(c)(6)(B) specifies a minimum
amount for the full-funding limitation
described in § 431(c)(6)(A), based on the
plan’s current liability. Section 431(c)(6)
(E)(ii)(I) provides that the interest rate
used to calculate current liability for this
purpose must be no more than 5 percent
above and no more than 10 percent below
the weighted average of the rates of inter-
est on 30-year Treasury securities during
the four-year period ending on the last
day before the beginning of the plan year.
1
Pursuant to § 433(h)(3)(A), the 3rd segment rate determined under § 430(h)(2)(C) is used to determine the current liability of a CSEC plan (which is used to calculate the minimum amount
of the full funding limitation under § 433(c)(7)(C)).

Bulletin No. 2020–53 1793 December 28, 2020
Notice 88-73, 1988-2 C.B. 383, provides
guidelines for determining the weighted
average interest rate. The rate of interest
on 30-year Treasury securities for No-
vember 2020 is 1.62 percent. The Service
determined this rate as the average of the
daily determinations of yield on the 30-
year Treasury bond maturing in August
2050 determined each day through No-
vember 10, 2020 and the yield on the
30-year Treasury bond maturing in No-
vember 2050 determined each day for the
balance of the month. For plan years be-
ginning in December 2020, the weighted
average of the rates of interest on 30-year
Treasury securities and the permissible
range of rates used to calculate current
liability are as follows:
Treasury Weighted Average Rates
For Plan Years
Beginning In
30-Year Treasury
Weighted Average
Permissible Range
90% to 105%
December 20202.352.11 to 2.47
MINIMUM PRESENT VALUE
SEGMENT RATES
In general, the applicable interest rates
under § 417(e)(3)(D) are segment rates
computed without regard to a 24-month
average. Notice 2007-81 provides guide-
lines for determining the minimum pres-
ent value segment rates. Pursuant to that
notice, the minimum present value seg-
ment rates determined for November 2020
are as follows:
Minimum Present Value Segment Rates
Month First Segment Second Segment Third Segment
November 2020 0.53 2.31 3.09
DRAFTING INFORMATION
The principal author of this notice is
Tom Morgan of the Office of the Asso-
ciate Chief Counsel (Employee Benefits,
Exempt Organizations, and Employment
Taxes). However, other personnel from
the IRS participated in the development
of this guidance. For further information
regarding this notice, contact Mr. Morgan
at 202-317-6700 or Paul Stern at 202-317-
8702 (not toll-free numbers).

December 28, 2020 1794 Bulletin No. 2020–53
Table 2020-11
Monthly Yield Curve for November 2020
Derived from November 2020 Data
MaturityYieldMaturityYieldMaturityYieldMaturityYieldMaturityYield
0.50.1520.52.9340.53.1160.53.1880.53.21
1.00.2721.02.9441.03.1161.03.1881.03.21
1.50.3821.52.9441.53.1161.53.1881.53.21
2.00.4622.02.9542.03.1162.03.1882.03.21
2.50.5322.52.9642.53.1262.53.1882.53.21
3.00.5723.02.9643.03.1263.03.1883.03.21
3.50.6323.52.9743.53.1263.53.1883.53.21
4.00.6924.02.9744.03.1264.03.1884.03.21
4.50.7724.52.9844.53.1364.53.1884.53.21
5.00.8625.02.9845.03.1365.03.1885.03.22
5.50.9725.52.9945.53.1365.53.1985.53.22
6.01.0926.02.9946.03.1366.03.1986.03.22
6.5
1.2226.53.0046.53.1366.53.1986.53.22
7.01.3627.03.0047.03.1467.03.1987.03.22
7.51.5027.53.0147.53.1467.53.1987.53.22
8.01.6328.03.0148.03.1468.03.1988.03.22
8.51.7628.53.0248.53.1468.53.1988.53.22
9.01.8929.03.0249.03.1469.03.1989.03.22
9.52.0029.53.0349.53.1469.53.1989.53.22
10.02.1130.03.0350.03.1570.03.1990.03.22
10.52.2130.53.0450.53.1570.53.1990.53.22
11.02.3031.03.0451.03.1571.03.2091.03.22
11.52.3931.53.0551.53.1571.53.2091.53.22
12.02.4632.03.0552.03.1572.03.2092.03.22
12.52.5332.53.0652.53.1572.53.2092.53.22
13.02.5933.03.0653.0
3.1673.03.2093.03.22
13.52.6433.53.0653.53.1673.53.2093.53.22
14.02.6834.03.0754.03.1674.03.2094.03.22
14.52.7234.53.0754.53.1674.53.2094.53.23
15.02.7535.03.0755.03.1675.03.2095.03.23
15.52.7835.53.0855.53.1675.53.2095.53.23
16.02.8136.03.0856.03.1676.03.2096.03.23
16.52.8336.53.0856.53.1776.53.2096.53.23
17.02.8537.03.0957.03.1777.03.2097.03.23
17.52.8737.53.0957.53.1777.53.2197.53.23
18.02.8838.03.0958.03.1778.03.2198.03.23
18.52.8938.53.1058.53.1778.53.2198.53.23
19.02.9039.03.1059.03.1779.03.2199.03.23
19.52.9139.53.1059.53.1779.53.2199.5
3.23
20.02.9240.03.1060.03.1780.03.21100.03.23

Bulletin No. 2020–53 1795 December 28, 2020
Round 3 of Phase III of the
§ 48A Qualifying Advanced
Coal Project Program
Notice 2020-88
SECTION 1. PURPOSE
Section 48A of the Internal Revenue
Code (Code), as originally enacted by the
Energy Policy Act of 2005, Pub. L. 109-58,
119 Stat. 594 (August 5, 2005), provided
for the first phase of the Qualifying Ad-
vanced Coal Project Program by authoriz-
ing the allocation of $1.3 billion of credits
(§ 48A Phase I Program). Section 111 of
the Energy Improvement and Extension
Act of 2008, Pub. L. 110-343, 122 Stat.
3765 (October 3, 2008), amended § 48A
to provide for a second phase of the Qual-
ifying Advanced Coal Project Program by
authorizing the allocation of an additional
$1.25 billion of credits (§ 48A Phase II Pro-
gram). Pursuant to § 48A(d)(4), on August
13, 2012, the Department of the Treasury
(Treasury Department) and the Internal
Revenue Service (Service) published No-
tice 2012-51, 2012-33 I.R.B. 150, to real-
locate § 48A credits available after the con-
clusion of the § 48A Phase I and Phase II
Programs (§ 48A Phase III Program). On
March 9, 2015, the Treasury Department
and the Service published Notice 2015-14,
2015-10 I.R.B. 722, announcing the 2015
reallocation round (Round 2) of the § 48A
Phase III program.
This notice updates and amplifies the
procedures for the allocation of § 48A
Phase III credits by announcing the begin-
ning of Round 3 of the § 48A Phase III
Program.
To be considered in Round 3 of the §
48A Phase III Program, applications must
be submitted to the Department of Energy
(DOE) (Application for DOE Certifica-
tion) and to the Service (Application for §
48A Certification) on or before March 28,
2021. See section 3 of this notice for ad-
ditional rules regarding these applications.
SECTION 2. BACKGROUND
.01 Section 46 of the Code provides
that the amount of the investment cred-
it for any taxable year is the sum of the
credits listed in § 46. That list includes the
Qualifying Advanced Coal Project credit
under § 48A.
.02 Section 48A(d)(1) provides that
the Secretary of the Treasury or his del-
egate, in consultation with the Secretary
of Energy, “shall establish a [Qualifying
Advanced Coal Project Program] for the
deployment of advanced coal-based gen-
eration technologies.” The Treasury De-
partment and the Service established the
§ 48A Phase I Program in Notice 2006-24,
2006-1 C.B. 595, as modified and updated
by Notice 2007-52, 2007-1 C.B. 1456.
.03 Pursuant to § 48A(d)(3)(B)(i) and
(ii), the § 48A Phase I Program provided
for (i) $800 million of credits to be allocat-
ed to integrated gasification combined cy-
cle (IGCC) projects and (ii) $500 million of
credits to other advanced coal projects. The
Service allocated § 48A Phase I Program
credits through annual allocation rounds in
2006, 2007-2008, and 2008-2009, with a
special allocation round in 2008.
.04 Pursuant to § 48A(d)(3)(B)(iii), the
Treasury Department and the Service es-
tablished the § 48A Phase II Program by
issuing Notice 2009-24, 2009-1 C.B. 817,
to allocate an additional $1.25 billion of
credits for advanced coal-based gener-
ation technology projects. The Service
allocated § 48A Phase II Program credits
through two allocation rounds in 2009-
2010 and 2011-2012.
.05 Pursuant to § 48A(d)(4), the Trea-
sury Department and the Service issued
Notice 2012-51 to establish the § 48A
Phase III Program to reallocate $658.5
million of available § 48A Phase I Pro-
gram credits. In Announcement 2013-43,
2013-2 C.B. 524, the Service announced
that the total amount of $658.5 million of
credits had been allocated, and, accord-
ingly, the 2012-2013 allocation round
would be the only allocation round in
Phase III.
.06 The Treasury Department and
the Service later determined that
$1,104,000,000 of § 48A credits were
available for reallocation due to forfei-
tures of previously allocated § 48A Phase
I and Phase II Program credits and unal-
located § 48A Phase II Program credits.
Accordingly, the Treasury Department
and the Service issued Notice 2015-14,
2015-10 I.R.B. 722, to establish Round 2
of the § 48A Phase III Program.
.07 After the completion of Round 2
of the § 48A Phase III Program, the Trea-
sury Department and the Service com-
pleted another review and determined
that $2,041,500,000 of § 48A credits are
available for reallocation due to forfei-
tures of previously allocated § 48A cred-
its. Accordingly, the Treasury Depart-
ment and the Service have determined
that an additional allocation round is ap-
propriate, and this notice announces the
beginning of Round 3 of the § 48A Phase
III Program.
SECTION 3. SECTION 48A PHASE III
PROGRAM
.01 Except as otherwise specifically
provided in this notice, Round 3 of the
§ 48A Phase III Program will be con-
ducted in the same manner and under the
same procedures as provided under Notice
2012-51. This notice restates or referenc-
es certain provisions in Notice 2012-51 as
a convenience to taxpayers. The restate-
ment or referencing of these provisions
does not diminish the effect of provisions
in Notice 2012-51 that are not restated or
referenced.
.02 For Round 3 of the § 48A Phase
III Program, § 48A Phase III credits in
the amount of $2,041,500,000 are avail-
able for reallocation. The credits will not
be separated into pools based on the type
of projects or the type of primary feed-
stock.
.03 The § 48A Phase III credit for a tax-
able year is an amount equal to 30 percent
of the qualified investment (as defined in §
48A(b)) for that taxable year in a Qualify-
ing Advanced Coal Project (as defined in §
48A(c)(1) and § 48A(e)). This rule applies
to both facilities that use an IGCC (as de-
fined in § 48A(c)(7)) and facilities that
use other advanced coal-based generation
technologies (as defined in § 48A(f)).
.04 For Round 3 of the § 48A Phase III
Program, the period to submit an Appli-
cation for § 48A Certification begins on
December 28, 2020, and ends on March
28, 2021. See section 3.07 of this notice
for the date by which the Application for
DOE Certification must be submitted to
DOE. For purposes of determining the
timeliness of submission of an Applica-
tion for § 48A Certification by the Service,
the rules of § 7502 apply.

December 28, 2020 1796 Bulletin No. 2020–53
.05 The Service will consider a proj-
ect under Round 3 of the § 48A Phase III
Program only if the Application for § 48A
Certification for the project is submitted
during the application period and DOE
provides the DOE certification and rank-
ing (if any) for the project on or before
April 27, 2021.
.06 If an Application for DOE Certi-
fication does not include all of the infor-
mation required by section 5.02 of Notice
2012-51, DOE may decline to accept the
application. If an Application for § 48A
Certification does not include all of the
information listed in section 5.03 of No-
tice 2012-51, the application will not be
accepted by the Service.
.07 For Round 3 of the § 48A Phase III
Program, DOE will consider an Application
for DOE Certification only if the application
is postmarked on or before March 28, 2021.
See section 5.02 of Notice 2012-51 and Ap-
pendix B to this notice for the information
to be submitted to DOE in an Application
for DOE Certification. Appendix B to this
notice also provides the instructions and
address for filing the Application for DOE
Certification. DOE will determine the tech-
nical and economic feasibility of the project
and, if the project is determined to be feasi-
ble, will provide a DOE certification for the
project to the Service. If DOE certifies two
or more projects, DOE also will rank each
of the projects it certifies (for example, first,
second, third, etc.) relative to other certi-
fied projects and credits will be allocated to
projects based on DOE ranking. DOE will
provide DOE certification for projects de-
termined to be feasible and DOE ranking (if
any) to the Service by April 27, 2021.
.08 By May 27, 2021, the Service will
accept or reject the taxpayer’s Application
for § 48A Certification and will notify the
taxpayer, by letter, of its decision.
.09 If the taxpayer’s Application for §
48A Certification is accepted, the accep-
tance letter will state the amount of the
credit allocated to the project. If a credit is
allocated to a taxpayer’s project, the tax-
payer will be required to execute an agree-
ment in the form set forth in Appendix A
to this notice. By June 26, 2021, the tax-
payer must return the executed agreement
to the Service at the appropriate address
listed in section 3.11 of this notice.
.10 By August 25, 2021, the Service
will execute and return the agreement to
the taxpayer. The executed agreement ap-
plies only to the accepted taxpayer.
.11 Instructions and Address for Filing
§ 48A Application. There is no fee for fil-
ing an Application for § 48A Certification.
It should be marked: “SECTION 48A AP-
PLICATION FOR CERTIFICATION.” A
taxpayer may submit the Application for
§ 48A Certification to the Service by U.S.
mail or private delivery service to:
Internal Revenue Service
LB&I: Enterprise Activities Practice
Area
N14W24200 Tower Place Suite 202
Waukesha, Wisconsin 53188
SECTION 4. EFFECT ON OTHER
DOCUMENTS
Notice 2012-51, 2012-2 C.B. 150, and
Notice 2015-14, 2015-10 I.R.B. 722, are
amplified.
SECTION 5. EFFECTIVE DATE
This notice is effective upon publica-
tion in the Internal Revenue Bulletin.
SECTION 6. PAPERWORK
REDUCTION ACT
The collection of information con-
tained in this notice has been reviewed
and approved by the Office of Manage-
ment and Budget in accordance with the
Paperwork Reduction Act (44 U.S.C. §
3507) under control number 1545-2003.
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.
The collections of information in this
notice are in section 3 and Appendix B.
This information is required to obtain an
allocation of Qualifying Advanced Coal
Project credits. This information will be
used by the Service to verify that the tax-
payer is eligible for an allocation of the
Qualifying Advanced Coal Project credits.
The collection of information is required
to obtain a benefit. The likely respondents
are business or other non-profit institu-
tions.
The estimated total annual reporting
burden is 550 hours.
The estimated annual burden per re-
spondent varies from 70 to 150 hours,
depending on individual circumstances,
with an estimated average of 110 hours.
The estimated number of respondents
is 5.
The estimated annual frequency of re-
sponses is on occasion.
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, and subject to the
disclosure of allocations provisions in §
48A(d)(5), tax returns and tax return in-
formation are confidential, as required by
26 U.S.C. § 6103.
SECTION 7. DRAFTING
INFORMATION
The principal author of this notice is
Brendan P. Coppinger of the Office of
Associate Chief Counsel (Passthroughs
& Special Industries). For further infor-
mation regarding this notice contact Mr.
Coppinger on (202) 317-6853 (not a toll-
free number).

Bulletin No. 2020–53 1797 December 28, 2020
APPENDIX A
AGREEMENT
[Insert taxpayer’s name, address, and identifying number] (“Taxpayer”) and the Commissioner of Internal Revenue (“Commis-
sioner”) make the following Agreement:
WHEREAS:
1. On or before March 28, 2021, Taxpayer submitted to the Internal Revenue Service (“Service”), an application for certification
under Round 3 of the § 48A Phase III Program described in Notice 2020-88 (“Application for § 48A Certification”).
2. Taxpayer’s Application for § 48A Certification in Round 3 is for the project described below (the “Project”):
(a) The Project will use an advanced coal-based generation technology (as defined in § 48A(c)(2) and (f)).
(b) The Project will be located at [insert address or other identifying designation].
(c) The Project site in subsection (b) above may be changed only if the change is consistent with the objectives of the Qualifying
Advanced Coal Project program, is requested by the taxpayer that received the credit allocation, and involves moving the Project site
to improve the potential to capture and sequester CO
2
emissions, reduce costs of transporting feedstock, and serve a broader customer
base. The Service will not agree to a project site change if the dollar amount of tax credits available to the taxpayer under § 48A would
increase as a result of the site change or if the Project would not have been originally certified had such modification been included
in the taxpayer’s application.
(d) The Project is [insert either: “a new electric generation unit (as defined in § 48A(c)(6))”; “a retrofit of an existing electric gen-
eration unit (as defined in § 48A(c)(6))”; or “a repower of an existing electric generation unit (as defined in § 48A(c)(6)).”]
(e) The Project will have a total nameplate generating capacity (as defined in section 3.02 of Notice 2012-51) of at least [insert
number] megawatts.
(f) At all times at least 75 percent of the cumulative total fuel input (as defined in section 3.03(1) of Notice 2012-51) used during
normal plant operations (as defined in section 3.03(2) of Notice 2012-51) for the Project will be coal (as defined in section 3.01 of
Notice 2012-51).
3. On [insert date of acceptance letter issued under Notice 2020-88], the Service accepted Taxpayer’s Application for § 48A Cer-
tification for the Project and allocated Qualifying Advanced Coal Project credit under § 48A in the amount of $[insert number] to the
Project.
4. Taxpayer understands that if Taxpayer fails to satisfy any of the certification requirements in § 48A(e)(2) within the time spec-
ified in § 48A(d)(2)(D) (2 years from the date specified in WHEREAS clause #3), or if the Service does not issue a certification for
the Project under Notice 2020-88, the § 48A Phase III credit in the amount specified in WHEREAS clause #3 allocated to the Project
in Round 3 of § 48A Phase III is fully forfeited.
5. Taxpayer understands that if the Project fails to attain or maintain the separation and sequestration of CO
2
emissions required
by § 48A(e)(1)(G), the § 48A Phase III Program credit in the amount specified in WHEREAS clause #3 allocated to the Project in
Round 3 will be recaptured pursuant to § 50(a).
6. Taxpayer understands that if the Project is not placed in service by Taxpayer within 5 years of the date of issuance of the certi-
fication as determined under section 6.03 of Notice 2012-51, the § 48A Phase III credit in the amount specified in WHEREAS clause
#3 allocated to the Project in Round 3 is fully forfeited. Taxpayer must provide evidence to the Service that the Project has been
timely placed in service.
7. Taxpayer understands that if the plans for the Project change in any significant respect from the plans set forth in the Application
for DOE Certification (as defined in section 5.02 of Notice 2012-51) and the Application for § 48A Certification (as defined in section
5.03 of Notice 2012-51) and, under section 7.01 of Notice 2012-51, the acceptance of Taxpayer’s Application for § 48A Certification
on the date specified in WHEREAS clause #3 is void, the § 48A Phase III credit in the amount specified in WHEREAS clause #3
allocated to the Project in Round 3 is fully forfeited.
8. Taxpayer understands that if the Project fails to satisfy any of the requirements in § 48A(e)(1)(A), (C), (D), (E), (F), and § 48A(i)
for a Qualifying Advanced Coal Project or, during normal plant operations (as defined in section 3.03(2) of Notice 2012-51), fails to
satisfy the requirement in § 48A(e)(1)(B) for a Qualifying Advanced Coal Project—
(a) at the time the Project is placed in service, § 48A Phase III credit in the amount specified in WHEREAS clause #3 allocated to
the Project in Round 3 is fully forfeited; and
(b) after the Project is placed in service (and after satisfying all such requirements at the time the Project is placed in service), the
Project ceases to be investment credit property and the recapture rules of § 50(a) apply.
9. Taxpayer understands that if at any time more than 25 percent of the cumulative total fuel input (as defined in section 3.03(1)
of Notice 2012-51) used during normal plant operations (as defined in section 3.03(2) of Notice 2012-51) is not coal (as defined in
section 3.01 of Notice 2012-51), the Project ceases to be investment credit property and the recapture rules of § 50(a) apply.
10. Taxpayer cannot claim the qualifying gasification project credit under § 48B for any qualified investment for which the Qual-
ifying Advanced Coal Project credit is allowed under § 48A.

December 28, 2020 1798 Bulletin No. 2020–53
11. Taxpayer understands that if Taxpayer elects to claim the Qualifying Advanced Coal Project Credit on the qualified progress
expenditures paid or incurred by Taxpayer during the taxable year(s) during which the Project is under construction and the Project
ceases to be a Qualifying Advanced Coal Project (whether before, at the time, or after the Project is placed in service), rules similar
to the recapture rules in § 50(a)(2)(A) through (D) apply.
12. This Agreement applies only to Taxpayer. Taxpayer must notify the Service within 90 days of the acquisition of the Project
by any other person (a successor in interest). A successor in interest that plans to claim the § 48A credit allocated to the Project must
request permission to execute a new agreement with the Service. If the request is granted, the new agreement must be executed no
later than the due date (including extensions) of the successor in interest’s Federal income tax return for the taxable year in which
the transfer occurs. If the interest is acquired at or before the time the Project is placed in service and the successor in interest fails to
execute a new agreement, the § 48A Phase III credit in the amount specified in WHEREAS clause #3 allocated to the Project in Round
3 is fully forfeited. If the interest is acquired after the time the Project is placed in service and the successor in interest fails to execute
a new agreement, the Project ceases to be investment credit property and the recapture rules of § 50(a) apply.
NOW IT IS HEREBY DETERMINED AND AGREED FOR FEDERAL INCOME TAX PURPOSES THAT:
1. The total amount of the § 48A Phase III credit that Taxpayer will claim for the Project under this Agreement on account of the ac-
ceptance of Taxpayer’s Application for § 48A Certification in Round 3 cannot exceed the amount specified in WHEREAS clause #3.
2. This Agreement does not express whether the Taxpayer has met the certification requirements under § 48A(e)(2) or other future
requirements to receive tax credits under § 48A.
3. This Agreement is limited and applies only to Taxpayer. A successor in interest that plans to claim the § 48A credit allocated to
the Project must request permission to execute a new agreement with the Service.
THIS AGREEMENT IS FINAL AND CONCLUSIVE EXCEPT:
1. The matter it relates to may be reopened in the event of fraud, malfeasance, or misrepresentation of a material fact;
2. It is subject to the Internal Revenue Code sections that expressly provide that effect be given to their provisions (including any
stated exception for § 7122) notwithstanding any law or rule of law; and
3. If it relates to a tax period ending after the date of this Agreement, it is subject to any law enacted after such date, which applies
to the tax period.
By signing, the parties certify that they have read and agreed to the terms of this Agreement.
Taxpayer: [insert name and identifying number]
By: __________________________________ Date Signed: ____________
[insert name]
Title: [insert title]
[insert taxpayer’s name]
Commissioner of Internal Revenue
By: _________________________________ Date Signed: ____________
Title:

Bulletin No. 2020–53 1799 December 28, 2020
APPENDIX B
APPLICATION FOR DOE CERTIFICATION
REQUEST FOR SUPPLEMENTAL APPLICATION INFORMATION FOR DOE
The Internal Revenue Service (“Service”) and the Department of Energy (“DOE”) seek to certify Applications for DOE Certifica-
tion and Applications for § 48A Certification that demonstrate a high likelihood of being successfully implemented by the applicants.
To qualify, projects must be technically and economically feasible and use an appropriate clean coal technology.
This request for supplemental information:
• Describes the information to be provided by the applicant seeking a certification of feasibility from DOE, and
• Lists the evaluation criteria and Program Policy Factors to be used by DOE in the evaluation of an Application for DOE Certifi-
cation. (For purposes of Appendix B, an Application for DOE Certification will be referred to as an “Application”.)
If, after review by DOE, a project is determined to be feasible, DOE will provide a DOE certification of feasibility to the Service.
The Service will then accept or reject the taxpayer’s Application for § 48A Certification.
In conducting this evaluation DOE may utilize assistance and advice from qualified personnel from other Federal agencies and/
or non-conflicted contractors. DOE will obtain assurances in advance from all evaluators that Application information shall be kept
confidential and used only for evaluation purposes. DOE reserves the right to request clarifications and/or supplemental information
from some or all applicants through written submissions and/or oral presentations, but is not required to do so.
Notice is given that DOE may determine whether or not to provide a certification of feasibility to the Service at any time after the
Application has been received, without further exchanges or discussions. Therefore, all applicants are advised to submit their most
complete and responsive Application.
Applications will not be returned.
A. General
This request, together with the information in relevant sections of Notice 2020-88 includes all the information needed to complete
an Application. All Applications shall be prepared in accordance with this request in order to provide a standard basis for evaluation
and to ensure that each Application will be uniform as to format and sequence.
Each Application should clearly demonstrate the applicant’s capability, knowledge, and experience regarding the requirements
described herein.
Applicants should fully address the requirements of Notice 2020-88, including Appendix B, and not rely on the presumed back-
ground knowledge of reviewers. DOE may eliminate without further consideration an Application that does not follow the instruc-
tions regarding the organization and content of the Application when the nature of the deviation and/or omission precludes meaning-
ful review of the Application.
B. Unnecessarily Elaborate Applications
Unnecessarily elaborate brochures or other presentations beyond those sufficient to present a complete and effective Application
are not desired. Elaborate artwork, graphics and pictures are neither required nor encouraged.
C. Procedures to Submit an Application for DOE Certification
An Application must include the information and documentation required by relevant sections of Notice 2020-88.
An Application will not be considered for Round 3 of the § 48A Phase III Program unless it is postmarked by March 28, 2021. One
electronic version on a USB flash drive of the Application must be submitted to:
ATTN: 48A DOE Application
Stephanie Kennedy
M/S:922-204(D)
National Energy Technology Laboratory
626 Cochrans Mill Road
Pittsburgh, PA 15236
One electronic version of the Application must also be sent to the Service as part of the Application for § 48A Certification. The
Application for § 48A Certification will not be considered in Round 3 unless it is submitted to the Service on or before March 28,
2021.

December 28, 2020 1800 Bulletin No. 2020–53
THE INFORMATION REQUIRED BY THIS REQUEST MUST BE SUBMITTED USING THE FORMAT AND THE
HEADINGS OF THE “PROJECT INFORMATION MEMORANDUM” AS DESCRIBED BELOW.
To aid in evaluation, an Application shall be clearly and concisely written and logically assembled. All pages of each part shall be
appropriately numbered and identified with the name of the applicant and the date.
The Application, including the Project Information Memorandum, MUST be formatted in one of the following software applica-
tions:
• Microsoft Word
tm
2010 or later edition
• Microsoft Excel
tm
2010 or later edition
• Adobe Acrobat
tm
PDF 7.0 or later edition
Financial models should be submitted using the Excel
tm
spreadsheet software product and must include working calculation for-
mulas and assumptions.
The applicant is responsible for the integrity and structure of the electronic files. DOE will not be responsible for reformatting,
restructuring or converting any files submitted in response to this request.
The Project Information Memorandum, excluding Appendices, shall not exceed seventy-five (75) pages. Pages in excess of the
page limitation will not be considered for evaluation. All text shall be typed, single spaced, using 12-point font, 1-inch margins, and
unreduced 8-1/2-inch by 11-inch pages. Illustrations and charts shall be legible with all text in legible font. Pages shall be sequen-
tially numbered. Except as otherwise noted herein the page guidelines previously set forth constitute a limitation on the total amount
of material that may be submitted for evaluation. No material may be incorporated in any Application by reference as a means to
circumvent the page limitation.
D. Project Information Memorandum
1. Summary and Introduction
a. Description of the Project
b. Financing and ownership structure
c. Description of the main parties to the project, including background, ownership and related experience
d. Current project status and schedule to beginning of construction
2. Technology and Technical Information
Provide a description of the proposed technology, including sufficient supporting information (such as vendor guarantees, process
flow diagrams, equipment descriptions, information on each major process unit and the total plant, compositions of major streams,
and the technical plan for achieving the goals proposed for the project) as would be needed to allow DOE to confirm that the technical
requirements of § 48A are met. Specifically, the applicant should:
• Provide evidence sufficient to demonstrate that the proposed technology meets the definition of “Advanced Coal-Based Gener-
ation Technology,” either as integrated gasification combined cycle (“IGCC”) technology, or other advanced coal-based electric
generation technology meeting the heat rate requirement of 8530 Btu/kWh.
• For advanced coal-based electric generation:
○ The applicant must provide evidence sufficient to justify the actual heat rate and heat rate corrected to conditions specified
in § 48A(f)(2).
○ For projects including existing units, the applicant must provide evidence sufficient to justify that the proposed technology
meets heat rate requirements specified in § 48A(f)(3).
• Provide evidence sufficient to justify that the proposed project is designed to meet the following performance requirements:
○ SO
2
(subbituminous coal is 80% or more of fuel input): 99% removal or emissions not more than 0.04 lbs/MMBTU
○ SO
2
(subbituminous coal is not more than 80% of fuel input): 99% removal
○ SO
2
(for all projects other than subbituminous coal projects): 99% removal
 NOx emissions...............0.07 lbs / MMBTU
 PM emissions.................0.015 lbs / MMBTU
 Hg percent removal.........90%
• Provide evidence sufficient to demonstrate that the project meets the requirements for Qualifying Advanced Coal Projects as
specified under § 48A(e)(1) including:
○ The project will power a new electric generation unit or retrofit/repower an existing electric generation unit. At least 50% of
the useful output of the project is electrical power.
○ The fuel for the project is at least 75% coal (as defined in § 48A(c)(4) and section 3.01 of Notice 2012-51), on an energy
input basis.

Bulletin No. 2020–53 1801 December 28, 2020
○ The project is located at one site and has a total nameplate electric power generating capacity (as defined in section 3.02 of
Notice 2012-51) of at least 400 MW.
○ The project includes equipment that separates and sequesters at least 70% of such project’s total carbon dioxide (“CO
2
”)
emissions. The CO
2
separation, capture, sequestration, and emission values shall be reported on metric tons per hour and
metric tons per year basis under normal plant operating conditions. The CO
2
separation, capture and sequestration percent-
ages shall be calculated based on the total CO
2
that would otherwise be released into the atmosphere as industrial emission
of greenhouse gas (“CO
2
emissions”).
3. Applicant’s Capability to Accomplish the Technical Objectives
Provide a narrative supporting the applicant’s capability to accomplish the technical objectives of the proposed project, including
supporting documentation demonstrating that the applicant has assembled a team that is formally committed to participate in the
proposed project. Provide information to support that the applicant has assembled a team with the skills and resources needed to
implement the project as proposed. Provide signed agreements or letters from team members demonstrating that the proposed team
members are fully committed to the project.
Provide information, including examples of prior similar projects completed by applicant, engineering-procurement-construction
(“EPC”) contractor, and suppliers of major subsystems or equipment, which support the capabilities of the applicant and its team
members to design, construct, permit, and operate the facility. The applicant should demonstrate that the team members have a cor-
porate history of successful completion of similar projects.
Provide information to support that key personnel of the applicant and its team members have knowledge, experience, and ade-
quate degree of involvement to successfully implement the project.
Include the project status and relevant information from ongoing engineering activities. Also include in an appendix any engineer-
ing report or reports used by the applicant to develop the project and to estimate costs and operating performance. Include copies of
any signed agreements to support project status claims regarding preliminary design studies, front-end engineering design (“FEED”),
and EPC-type agreements.
4. Priority for Qualifying Advanced Coal Projects
The applicant must submit information sufficient for categorization and prioritization of projects for certification, including docu-
mentation pertaining to the following:
• High priority project factors:
○ Increased by-product utilization, if applicable.
○ Research partnership with an eligible educational institution as defined in § 48A(e)(3)(B)(iii), if applicable.
• Highest priority factor: Separation and sequestration percentage of total CO
2
emissions.
5. Site Control and Ownership
Provide evidence that demonstrates the overall feasibility of implementing the project at the proposed site.
Provide evidence that the applicant owns or controls a site in the United States of sufficient size to allow the proposed project to
be constructed and operated on a long-term basis. Documentation such as a deed demonstrating the applicant owns the project site, a
signed option to purchase the site from the site owner, or a letter of intent signed by the site owner and stating the site owner’s intent
to sell the site to the applicant should be provided.
Describe the current infrastructure at the site available to meet the needs of the project. Provide documentation supporting ap-
plicant’s conclusion that the proposed site can fully meet all environmental, coal supply, water supply, transmission interconnect,
and public policy requirements. Such documentation may include signed agreements, letters of intent, or term sheets relating to coal
supply, water supply, and product (e.g. CO
2
) transportation etc., and regulatory approvals supporting the key claims.
Provide detailed plans, schedules and status updates, particularly for sites with pre-existing conditions that could impact the pro-
posed project. Pre-existing conditions may include, but are not limited to, sites with mandated environmental remediation efforts;
brown-field sites that will require building demolition; or sites requiring substantial rerouting of existing roads, railroads, transmis-
sion lines or pipelines prior to the start of the project.
Applicants must select one “proposed site.” However, projects with key physical or logistical elements that require close integra-
tion with another system for the project to succeed should provide information on all integrated systems regardless of where they are
located.
Example 1: A power plant designed to operate exclusively on coal from a to-be-opened mine should provide supporting documen-
tation for the new mine.
Example 2: An oxygen-blown IGCC plant planning to purchase oxygen from a third party who will construct a plant exclusively
for this project should provide documentation for the oxygen supplier.

December 28, 2020 1802 Bulletin No. 2020–53
Example 3: An IGCC plant planning to sell CO
2
for enhanced oil recovery (“EOR”) should provide an agreement for such a trans-
action indicating the annual CO
2
purchase quantity, expected project lifetime sales, CO
2
capacity of the site for EOR, and EOR site
ownership.
This is not a comprehensive set of example projects or situations.
6. Utilization of Project Output
Provide a projection of the anticipated costs of electricity and other marketable by-products produced by the plant.
Provide documentation establishing that a majority of the output of the plant is reasonably expected to be acquired or utilized.
Such documentation should be signed by authorizing officials of both the buyer and seller, and may include: Sales Agreements, Let-
ters of Intent, Memoranda of Understanding, Option Agreements, and Power Purchase Agreements.
Describe any energy sales arrangements that exist or that may be contemplated (e.g., a Power Purchase Agreement or Energy Sales
Agreement) and summarize their key terms and conditions.
Include as an appendix any independent Energy Price Market Study that has been done in connection with this project, or if no
independent market study has been completed, provide a copy of the applicant-prepared market study.
Identify and describe any firm arrangements to sell non-power output, such as CO
2
, and provide any evidence of such arrange-
ments. If the project produces a product in addition to power, include as an appendix any related market study of price and volume
of sales expected for that product.
7. Project Economics
Describe the project economics and provide satisfactory evidence of economic feasibility as demonstrated through the financial
forecast and the underlying project assumptions. The project economic and financial assumptions should be clearly stated and ex-
plained.
Show calculation of the amount of tax credit applied for based on allowable cost.
8. Project Development and Financial Plan
Provide the total project budget and major plant costs (e.g., development, operating, capital, construction, and financing costs).
Provide the estimated annual budget for and source of project development costs from the time of the Application until the beginning
of construction, including legal, engineering, financial, environmental, overhead, and other development costs. Describe the overall
approach to project development and financing sufficient to demonstrate project viability. Provide a complete explanation of the
source and amount of project equity. Provide a complete explanation of the source and amount of project debt. Provide the audited
financial statements for the most recently ended three fiscal years and quarterly interim financial statements for the current fiscal year
(a) for the applicant, (b) for any of the project parties providing funding, and (c) for any third-party funding source. If the applicant
or another party does not have audited financial statements, the applicant or the party should provide equivalent financial statements
prepared by the applicant or the party, in accordance with Generally Accepted Accounting Principles, and certified as to accuracy and
completeness by the Chief Financial Officer of the party providing the statements.
For internally financed projects, provide evidence that the applicant has sufficient assets to fund the project with its own resources.
Identify any internal approvals required to commit such assets. Include in an appendix copies of any board resolution or other approv-
al authorizing the applicant to commit funds and proceed with the project.
For projects financed through debt instruments either unsecured or secured by assets other than the project, provide evidence
that the applicant has sufficient creditworthiness to obtain such financing along with a discussion of the status of such instruments.
Identify any internal approvals required to commit the applicant to pursue such financing. Include in an appendix copies of any board
resolution or other approval authorizing the applicant to commit to such financing.
For projects financed through investor equity contributions, describe the source and status of each contribution. Discuss each in-
vestor’s financial capability to meet its commitments. Include in an appendix, copies of any executed investment agreements.
If financing through a public offering or private placement of either debt or equity is planned for the project, provide the expected
debt rating for the issue and an explanation of applicant’s justification for the rating. Describe the status of any discussions with pro-
spective investment bankers or other financial advisors.
Include as an appendix copies of any existing funding commitments or expressions of interest from funding sources for the project.
For projects employing nonrecourse or limited recourse debt financing, provide a complete discussion of the approach to, and
status of, such financing.
In an appendix: (1) provide an Excel
tm
-based financial model of the project, with working formulas, so that review of the model
calculations and assumptions may be facilitated; and (2) provide pro-forma project financial, economic, capital cost, and operating
assumptions, including detail of all project capital costs, development costs, interest during construction, transmission interconnec-
tion costs, other operating expenses, and all other costs and expenses.

Bulletin No. 2020–53 1803 December 28, 2020
9. Project Contract Structure
Describe the current status of each of the agreements set forth below. Include as an appendix copies of the contracts or summaries
of the key provisions of each of the following agreements:
• Power Purchase Agreement (if not fully explained in section 6 above).
• Coal Supply: describe the source and price of coal supply for the project. Include as an appendix any studies of coal supply price
and amount that have been prepared. Include a summary of the coal supply contract and a signed copy of the contract.
• Coal Transportation: explain the arrangements for transporting coal, including costs.
• Operations & Maintenance Agreement: include a summary of the terms and conditions of the contract and a copy of the contract.
• Shareholders Agreement: summarize key terms and include the agreement as an appendix.
• Engineering, Procurement and Construction Agreement: describe the key terms of the existing or expected EPC contract arrange-
ment, including firm price, liquidated damages, hold-backs, performance guarantees, etc.
• Water Supply Agreement: confirm the amount, source, and cost of water supply.
• Transmission Interconnection Agreement: explain the requirements to connect to the system and the current status of negotia-
tions in this respect.
• If CO
2
is to be sold to a third party for sequestration, provide a Sales Agreement and provide specifics, such as CO
2
sales (metric
tons per year), expected project lifetime sales (metric tons), potential CO
2
capacity of the site for sequestration (metric tons),
technology and site suitability for sequestration, and sequestration site ownership and operation.
10. Permits Including Environmental Authorizations
Provide a complete list of all Federal, State, and local permits, including environmental authorizations or reviews, necessary to
commence construction of the project.
Explain what actions have been taken to date to satisfy the required authorizations and reviews, and the status of each.
Provide a description of the applicant’s plan to obtain and complete all necessary permits, and environmental authorizations and
reviews.
11. Steam Turbine Purchase
If applicant plans to purchase a steam turbine or turbines for the project, indicate the prospective vendors for the turbine and ex-
plain the current status of purchase negotiations, and provide a timeline for negotiation and purchase with expected purchase date.
12. Project Schedule
Provide an overall project schedule which includes technical, business, financial, permitting and other factors to substantiate that
the project will meet the 2-year project certification and 5-year placed-in-service requirement.
The project schedule should be comprehensive and provide sufficient detail to demonstrate how applicant will meet the certifica-
tion and placed-in-service requirements. The schedule should demonstrate that the applicant understands the required tasks and has
allowed realistic times for accomplishing the technical and financial tasks. The schedule should include the milestone accomplish-
ments needed to obtain the financing for the project.
Applicants should document their progress toward meeting any completion of permitting deadline. Existing permits and permit
applications must be specific to the project proposed. If existing permits are not specific for the proposed coal-based project (e.g. the
permits are for oil-fired or natural-gas-based units), specific plans, procedures and schedules for reapplying, modifying and/or rene-
gotiating permits should be provided. Any local, State or Federal permitting schedules that may impact the overall project schedule
should be included.
Applicant should document their progress toward obtaining engineering design information (i.e., FEED) to initiate permitting
activities and to finalize the turbine generator purchase specification within the 2-year window. Most often, this requires final site,
technology, and process selection. Signed FEED and/or EPC-type agreements, if available, should be provided.
13. Appendices
a. Copy of internal or external engineering reports.
b. Copy of site plan, together with evidence that applicant owns or controls a site. Examples of evidence would include a deed, or
an executed contract to purchase or lease the site.
c. Information supporting applicant’s conclusion that the site is fully acceptable as the project site with respect to environment,
coal supply, water supply, transmission interconnect, and public policy reasons.
d. Power Purchase or Energy Sales Agreement.

December 28, 2020 1804 Bulletin No. 2020–53
e. Energy Market Study.
f. Market Study for non-power output.
g. Financial Model of project.
h. Audited financial statements for the applicant and other project funding sources for the most recently ended three fiscal years,
and the unaudited quarterly interim financial statements for the current fiscal year.
i. Expressions of interest or commitment letters from funding sources.
j. For each project contract, if no contract currently exists, provide a summary of the expected terms and conditions.
k. List of all Federal, State, and local permits, including environmental authorizations or reviews, necessary to commence con-
struction.
E. Evaluation Criteria
Advanced coal projects will be evaluated on whether they meet all the requirements of § 48A and this notice.
Technical: will be evaluated on whether the applicant has demonstrated the capability to accomplish the technical objectives.
Site: will be evaluated on the basis that the site requirement for ownership or control has been met, and that the site is suitable for
the proposed project.
Economic: will be evaluated on whether the project has demonstrated economic feasibility, taking into consideration the submitted
financial and project development and structural information and financial plan.
Schedule: will be evaluated on the applicant’s ability to meet the 2-year project certification and the 5-year placed-in-service
requirement.
F. Program Policy Factors to Be Used by DOE in the Evaluation of Applications
Section 48A identifies minimum requirements for consideration for the Qualifying Advanced Coal Project credit, including the
project’s technical feasibility, cost, and applicant’s ability. In the event that there are more qualified (certifiable) Applications than
there are available amount of tax credit, DOE will apply Program Policy Factors to rank eligible Advanced Coal Projects based on
their ability to advance coal technology beyond its current state.
In ranking certified projects, highest priority will be given to the Primary Ranking Factor. Secondary and Tertiary Ranking Factors
will be taken into account to rank projects that are not clearly differentiated on the basis of the Primary Ranking Factor, with higher
priority given to Secondary Ranking Factors than to Tertiary Ranking Factors.
Primary Ranking Factor:
• Capture and sequestration of more than 70% CO
2
emissions. Only projects that capture and sequester 70% or more of the plant’s
CO
2
emissions will be considered for DOE certification. Among the certified projects, highest rankings will be given to projects
with the greatest sequestration percentage of total separated CO
2
emissions.
Secondary Ranking Factors:
• Increased by-product utilization.
• Research partnership with an eligible educational institution as defined in § 48A(e)(3)(B)(iii).
Tertiary Ranking Factors:
• Presentation of other environmental, economic, or performance benefits.
• Higher plant efficiency.
• Geographic distribution of potential markets.
• The ratio of total nameplate generating capacity (as defined in section 3.02 of Notice 2012-51) to requested tax credit.
• Diversity of technology approaches and methods.
G. Supplemental Technical and Financial Guidance for Project Information Memorandum
Technology and Technical Information
It is important that the applicant select a specific advanced coal system for the project. Without that decision, it is difficult to
provide the necessary specific design information needed for DOE to evaluate the project feasibility with respect to performance,
emissions, outputs of major streams as well as capital and operating costs.
The applicant’s capability to meet the legislated heat rate and/or environmental targets should be supported with design informa-
tion, and/or vendor guarantees that are project, site and coal specific.

Bulletin No. 2020–53 1805 December 28, 2020
Project Economics
Applicants should demonstrate the project’s economic feasibility and financial viability by providing a clear statement and expla-
nation of the economic and financial assumptions made by the applicant, and a financial forecast for the project. The financial forecast
should flow logically from the applicant’s assumptions and be consistent with them. Applicants should include assumptions regarding
financial and economic issues that may not be included in the project costs but have a direct impact on the project. The examples giv-
en in the “Site Control and Ownership” section are relevant here and their impact on the project economics should be discussed here.
Project Development and Financial Plan
The information provided by the applicant in this section should demonstrate that the applicant’s financial plan for developing the
project is feasible and that the applicant will have access to necessary financing. The applicant should explain the source and timing
for obtaining all financing, including the project development costs. It is important that the applicant explain and provide evidence
that it has the capacity to fund the pre-construction project development costs, together with a budget for and description of those
costs. Note that financial information is required for the applicant and for any other funding source.
Project Contract Structure
This section requires that the applicant demonstrate an understanding of the commercial contracting process and show progress in
establishing the framework of contracts and agreements that a project typically requires. Applicants should show that their intended
contract structure is reasonable and that their assumptions relative to price, terms, and conditions are consistent with current market
conditions. Evidence of final agreements, agreements in principle, or summaries of terms and conditions between the applicant and
contract counterparties should be provided, if available.

December 28, 2020 1806 Bulletin No. 2020–53
26 CFR 601.105: Examination of returns
and claims for refund, credit or abatement;
determination of correct tax liability.
(Also: Part 1, §§ 6662, 6694, 1.6662-4, 1.6694-2)
Rev. Proc. 2020-54
SECTION 1. PURPOSE
This revenue procedure updates Rev.
Proc. 2019-42, 2019-49 I.R.B. 1298, and
identifies circumstances under which the
disclosure on a taxpayer’s income tax re-
turn with respect to an item or position
is adequate for the purpose of reducing
the understatement of income tax under
section 6662(d) of the Internal Revenue
Code (relating to the substantial under-
statement aspect of the accuracy-related
penalty), and for the purpose of avoiding
the tax return preparer penalty under sec-
tion 6694(a) (relating to understatements
due to unreasonable positions) with re-
spect to income tax returns. This revenue
procedure does not apply with respect to
any other penalty provisions (including
but not limited to the disregard provisions
of the section 6662(b)(1) accuracy-related
penalty, the section 6662(i) increased ac-
curacy-related penalty in the case of non-
disclosed noneconomic substance transac-
tions, and the section 6662(b)(7) and (j)
increased accuracy-related penalty in the
case of undisclosed foreign financial asset
understatements). If this revenue proce-
dure does not include an item or position,
disclosure is adequate with respect to that
item or position only if made on a prop-
erly completed Form 8275 or 8275-R, as
appropriate, attached to the return for the
year or to a qualified amended return. See
Treas. Reg. § 1.6664-2(c) for information
about qualified amended returns.
This revenue procedure applies to any
income tax return filed on 2020 tax forms
for a taxable year beginning in 2020, and
to any income tax return filed in 2021 on
2020 tax forms for short taxable years be-
ginning in 2021.
SECTION 2. CHANGES FROM REV.
PROC. 2019-42
Editorial changes have been made
throughout this revenue procedure. In ad-
dition, minor changes have been made in
order to update the taxable years and tax
forms to which this revenue procedure ap-
plies. No additional substantive changes
have been made.
SECTION 3. BACKGROUND
.01 If section 6662 applies to any por-
tion of an underpayment of tax required
to be shown on a return, an amount equal
to 20 percent of the portion of the un-
derpayment is added to the tax. Under
section 6662(b)(2), the penalty applies to
the portion of any underpayment of tax
that is attributable to a substantial un-
derstatement of income tax. The penalty
rate increases to 40 percent in the case of
gross valuation misstatements under sec-
tion 6662(h), nondisclosed noneconom-
ic substance transactions under section
6662(i), or undisclosed foreign finan-
cial asset understatements under section
6662(j).
.02 Generally, there is a substan-
tial understatement of income tax if
the amount of the understatement ex-
ceeds the greater of (i) 10 percent of
the amount of tax required to be shown
on the return for the taxable year or (ii)
$5,000. Section 6662(d)(1). Section
6662(d)(1)(C) provides a special rule for
taxpayers claiming a section 199A de-
duction. In the case of any taxpayer who
claims any deduction allowed under sec-
tion 199A for the taxable year, there is
a substantial understatement of income
tax if the amount of the understatement
exceeds the greater of (i) 5 percent of
the amount of tax required to be shown
on the return for the taxable year or (ii)
$5,000. Section 6662(d)(1)(B) provides
a special rule for corporations. A corpo-
ration (other than an S corporation or a
personal holding company) has a sub-
stantial understatement of income tax
if the amount of the understatement ex-
ceeds the lesser of (i) 10 percent of the
tax required to be shown on the return
for a taxable year (or, if greater, $10,000)
or (ii) $10,000,000. Generally, an under-
statement is the excess of the amount of
tax required to be shown on the return
for the taxable year over the amount of
the tax that is shown on the return re-
duced by any rebate, where the excess
is determined without regard to items to
which the reportable transaction under-
statement penalty under section 6662A
applies. Section 6662(d)(2)(A). For pur-
poses of determining whether an under-
statement is substantial, the understate-
ment determined under the general rule
is increased by the aggregate amount of
any reportable transaction understate-
ments relating to the return. Section
6662A(e)(1)(A).
.03 In the case of an item not attribut-
able to a tax shelter, if the taxpayer has a
reasonable basis for the tax treatment of
the item, the amount of the understate-
ment is reduced by the portion of the un-
derstatement attributable to the item with
respect to which the relevant facts affect-
ing the item’s tax treatment are adequately
disclosed in the return or in a statement
attached to the return. Section 6662(d)(2)
(B)(ii).
.04 Section 6694(a) imposes a penal-
ty on a tax return preparer who prepares
a return or claim for refund reflecting an
understatement of liability due to an “un-
reasonable position” if the tax return pre-
parer knew (or reasonably should have
known) of the position. A position (other
than a position with respect to a tax shelter
or a reportable transaction to which sec-
tion 6662A applies) is generally treated
as unreasonable unless (i) there is or was
substantial authority for the position, or
(ii) the position was properly disclosed in
accordance with section 6662(d)(2)(B)(ii)
(I) and had a reasonable basis. If the po-
sition is with respect to a tax shelter (as
defined in section 6662(d)(2)(C)(ii)) or
a reportable transaction to which section
6662A applies, the position is treated as
unreasonable unless it is reasonable to be-
lieve that the position would more likely
than not be sustained on the merits. See
Notice 2009-5, 2009-3 I.R.B. 309, for
interim penalty compliance rules for tax
shelter transactions.
.05 In general, this revenue procedure
provides guidance for determining when
disclosure by return is adequate for pur-
poses of section 6662(d)(2)(B)(ii) and
section 6694(a)(2)(B). For purposes of
this revenue procedure, the taxpayer must
furnish all required information in ac-
cordance with the applicable forms and
instructions, and the money amounts en-
tered on these forms must be verifiable.

Bulletin No. 2020–53 1807 December 28, 2020
.06 This revenue procedure may ap-
ply to a return for a fiscal tax year that
begins in 2020 and ends in 2021. This
revenue procedure may also apply to a
short year return for a period beginning
in 2021 if the return is to be filed before
the 2021 forms are available. (Note that
individuals are generally not put in this
position. The most frequent situation in
which a short year arises is when filing
a decedent’s final return for a fractional
part of a year. In that situation, the 2021
form will be available because the fi-
nal return is due the fifteenth day of the
fourth month following the close of the
12-month period that began with the first
day of such fractional part of the year
(meaning the due date is not accelerat-
ed). See Treas. Reg. § 1.6072-1(b). In the
case of fiscal year and short year returns,
the taxpayer must take into account any
tax law changes that are effective for
tax years beginning after December 31,
2020, even though these changes are not
reflected on the form or instructions.
.07 This document does not take into
account the effect of tax law changes ef-
fective for tax years beginning after De-
cember 31, 2020. If a line referenced in
this revenue procedure is affected by such
a change and requires additional reporting,
a taxpayer may have to file Form 8275,
Disclosure Statement, or Form 8275-R,
Regulation Disclosure Statement, until the
Service prescribes criteria for complying
with the requirement.
.08 A complete and accurate disclosure
of a tax position on the appropriate year’s
Schedule UTP, Uncertain Tax Position
Statement, will be treated as if the corpo-
ration filed a Form 8275 or Form 8275-R
regarding the tax position. The filing of
a Form 8275 or Form 8275-R, however,
will not be treated as if the corporation
filed a Schedule UTP.
SECTION 4. PROCEDURE
.01 General
(1) Additional disclosure of facts rele-
vant to, or positions taken with respect to,
issues involving any of the items set forth
below is unnecessary for purposes of re-
ducing any understatement of income tax
under section 6662(d) (except as other-
wise provided in section 4.02(3) concern-
ing Schedules M-1 and M-3), provided
that the forms and attachments are com-
pleted in a clear manner and in accordance
with their instructions.
(2) The money amounts entered on
the forms must be verifiable, and the in-
formation on the return must be disclosed
in the manner described below. For pur-
poses of this revenue procedure, a num-
ber is verifiable if, on audit, the taxpayer
can prove the origin of the amount (even
if that number is not ultimately accepted
by the Service) and the taxpayer can show
good faith in entering that number on the
applicable form.
(3) The disclosure of an amount as
provided in section 4.02 below is not ad-
equate when the understatement arises
from a transaction between parties who
are related within the meaning of section
267(b). If an entry may present a legal
issue or controversy because of a relat-
ed-party transaction, then that transaction
and the relationship must be disclosed on
a Form 8275 or Form 8275-R.
(4) When the amount of an item is shown
on a line that does not have a preprinted de-
scription identifying that item (such as on
an unnamed line under an “Other Expense”
category), the taxpayer must clearly iden-
tify the item by including the description
on that line. For example, to disclose a bad
debt for a sole proprietorship, the words
“bad debt” must be written or typed on the
line of Schedule C (Form 1040 or 1040SR)
that shows the amount of the bad debt.
Also, for Schedule M-3 (Form 1120), Part
II, line 25, Other income (loss) items with
differences, or Part III, line 38, Other ex-
pense/deduction items with differences, the
entry must provide descriptive language;
for example, “Cost of non-compete agree-
ment deductible not capitalizable,” and the
description must be provided on an attach-
ment. Similarly, for other forms, if space
limitations on a form do not allow for an
adequate description, the description must
be continued on an attachment.
(5) Although a taxpayer may literally
meet the disclosure requirements of this
revenue procedure, the disclosure will
have no effect for purposes of the section
6662 accuracy-related penalty if the item
or position on the return (1) does not have
a reasonable basis as defined in Treas.
Reg. § 1.6662-3(b)(3); (2) is attributable
to a tax shelter item as defined in section
6662(d)(2)(C)(ii); or (3) is not proper-
ly substantiated or the taxpayer failed to
keep adequate books and records with re-
spect to the item or position.
(6) Disclosure also will have no effect
for purposes of the section 6694(a) penal-
ty as applicable to tax return preparers if
the position is with respect to a tax shelter
(as defined in section 6662(d)(2)(C)(ii)) or
a reportable transaction to which section
6662A applies.
.02 Items
(1) Form 1040, Schedule A, Itemized
Deductions:
(a) Medical and Dental Expenses:
Complete lines 1 through 4, supplying all
required information.
(b) Taxes: Complete lines 5 through 7,
supplying all required information. Line 6
must list each type of tax and the amount
paid.
(c) Interest Expenses: Complete lines 8
through 10, supplying all required infor-
mation. This section 4.02(1)(c) does not
apply to (i) amounts disallowed under sec-
tion 163(d) unless Form 4952, Investment
Interest Expense Deduction, is completed,
or (ii) amounts disallowed under section
265.
(d) Charitable Contributions: Complete
lines 11 through 14, supplying all required
information and attaching all related forms
required pursuant to statute or regulation.
(e) Casualty and Theft Losses: Com-
plete Form 4684, Casualties and Thefts,
and attach to the return. Each item or ar-
ticle for which a casualty or theft loss is
claimed must be listed on Form 4684.
(2) Certain Trade or Business Expens-
es (including, for purposes of this section,
the following six expenses as they relate
to the rental of property):
(a) Casualty and Theft Losses: The
procedure outlined in section 4.02(1)(e)
must be followed.
(b) Legal Expenses: The amount
claimed must be stated. This section does
not apply, however, to amounts properly
characterized as capital expenditures, per-
sonal expenses, or non-deductible lobby-
ing or political expenditures, including
amounts that are required to be (or that
are) amortized over a period of years.
(c) Specific Bad Debt Charge-off: The
amount written off must be stated.

December 28, 2020 1808 Bulletin No. 2020–53
(d) Officers’ Compensation: Complete
Form 1125-E, Compensation of Officers,
when its instructions require completion.
You must express the “percent of time
devoted to business” as a numerical per-
centage, rather than as a non-numerical
description such as “part” or “as needed.”
This section does not apply to “excess
parachute payments,” as defined in sec-
tion 280G. This section does not apply
to the extent that remuneration paid or
incurred exceeds an applicable employ-
ee-remuneration deduction limitation un-
der section 162(m).
(e) Repair Expenses: The amount
claimed must be stated. This section does
not apply, however, to any amount proper-
ly characterized as capital expenditures or
personal expenses.
(f) Taxes (other than foreign taxes):
The amount claimed must be stated.
(3) Differences in book and income tax
reporting:
For Schedule M-1 and all Schedules
M-3, including those listed in (a)-(f) be-
low, the information provided must rea-
sonably apprise the Service of the po-
tential controversy concerning the tax
treatment of the item. If the information
provided does not so apprise the Service, a
Form 8275 or Form 8275-R must be used
to adequately disclose the item (see Part II
of the instructions for those forms).
Note: An item reported on a line with
a pre-printed description, shown on an at-
tached schedule or “itemized” on Sched-
ule M-1, may represent the aggregate
amount of several transactions producing
that item (i.e., a group of similar items,
such as amounts paid or incurred for sup-
plies by a taxpayer engaged in business).
In some instances, a potentially contro-
versial item may involve a portion of the
aggregate amount disclosed on the sched-
ule. The Service will not be reasonably
apprised of a potential controversy by the
aggregate amount disclosed. In these in-
stances, the taxpayer must use Form 8275
or Form 8275-R regarding that portion of
the item.
Combining unlike items, whether on
Schedule M-1 or Schedule M-3 (or on an at-
tachment when directed by the instructions),
will not constitute an adequate disclosure.
Additionally, taxpayers that file the
Schedule M-3 (Form 1120), Net Income
(Loss) Reconciliation for Corporations
With Total Assets of $10 Million or More,
may be required to complete Schedule B
(Form 1120), Additional Information for
Schedule M-3 Filers. For further infor-
mation, see Who Must File in the Gen-
eral Instructions for Schedule B (Form
1120). Taxpayers that file the Schedule
M-3 (Form 1065), Net Income (Loss)
Reconciliation for Certain Partnerships,
may be required to complete Schedule C
(Form 1065), Additional Information for
Schedule M-3 Filers. For further infor-
mation, see Who Must File in the Gen-
eral Instructions for Schedule C (Form
1065). When required, these schedules
are necessary to constitute adequate dis-
closure:
(a) Form 1065. Schedule M-3 (Form 1065), Net Income (Loss) Reconciliation for Certain Partnerships:
Part II (reconciliation of income (loss) items)
Column (a), Income (Loss) per Income Statement;
Column (b), Temporary Difference;
Column (c), Permanent Difference; and
Column (d), Income (Loss) per Tax Return
Part III (reconciliation of expense/deduction
items)
Column (a), Expense per Income Statement;
Column (b), Temporary Difference;
Column (c), Permanent Difference; and
Column (d), Deduction per Tax Return
(b) Form 1120. (i) Schedule M-1, Reconciliation of Income (Loss) per Books With Income per Return.
(ii) Schedule M-3 (Form 1120), Net Income (Loss) Reconciliation for Corporations With Total Assets of $10 Million or More:
Part II (reconciliation of income (loss) items)
Column (a), Income (Loss) per Income Statement;
Column (b), Temporary Difference;
Column (c), Permanent Difference; and
Column (d), Income (Loss) per Tax Return
Part III (reconciliation of expense/deduction
items)
Column (a), Expense per Income Statement;
Column (b), Temporary Difference;
Column (c), Permanent Difference; and
Column (d), Deduction per Tax Return

Bulletin No. 2020–53 1809 December 28, 2020
(c) Form 1120-L. Schedule M-3 (Form 1120-L), Net Income (Loss) Reconciliation for U.S. Life Insurance Companies With Total
Assets of $10 Million or More:
Part II (reconciliation of income (loss) items)
Column (a), Income (Loss) per Income Statement;
Column (b), Temporary Difference;
Column (c), Permanent Difference; and
Column (d), Income (Loss) per Tax Return
Part III (reconciliation of expense/deduction
items)
Column (a), Expense per Income Statement;
Column (b), Temporary Difference;
Column (c), Permanent Difference; and
Column (d), Deduction per Tax Return
(d) Form 1120-PC. Schedule M-3 (Form 1120-PC), Net Income (Loss) Reconciliation for U.S. Property and Casualty Insurance
Companies With Total Assets of $10 Million or More:
Part II (reconciliation of income (loss) items)
Column (a), Income (Loss) per Income Statement;
Column (b), Temporary Difference;
Column (c), Permanent Difference; and
Column (d), Income (Loss) per Tax Return
Part III (reconciliation of expense/deduction
items)
Column (a), Expense per Income Statement;
Column (b), Temporary Difference;
Column (c), Permanent Difference; and
Column (d), Deduction per Tax Return
(e) Form 1120-S. Schedule M-3 (Form 1120-S), Net Income (Loss) Reconciliation for S Corporations With Total Assets of $10
Million or More:
Part II (reconciliation of income (loss) items)
Column (a), Income (Loss) per Income Statement;
Column (b), Temporary Difference;
Column (c), Permanent Difference; and
Column (d), Income (Loss) per Tax Return
Part III (reconciliation of expense/deduction
items)
Column (a), Expense per Income Statement;
Column (b), Temporary Difference;
Column (c), Permanent Difference; and
Column (d), Deduction per Tax Return
(f) Form 1120-F. Schedule M-3 (Form 1120-F), Net Income (Loss) Reconciliation for Foreign Corporations With Reportable
Assets of $10 Million or More:
Part II (reconciliation of income (loss) items)
Column (b), Temporary Differences;
Column (c), Permanent Differences; and
Column (d), Other Permanent Differences for Allocations to Non-ECI and ECI
Part III (reconciliation of expense/deduction
items)
Column (b), Temporary Differences;
Column (c), Permanent Differences; and
Column (d), Other Permanent Differences for Allocations to Non-ECI and ECI
(4) Foreign Tax Items:
(a) International Boycott Transactions:
Transactions disclosed on Form 5713,
International Boycott Report; Schedule
A, International Boycott Factor (Sec-
tion 999(c)(1)); Schedule B, Specifically
Attributable Taxes and Income (Section
999(c)(2)); and Schedule C, Tax Effect of
the International Boycott Provisions, must
be completed when required by their in-
structions.
(b) Treaty-Based Return Position:
Transactions and amounts under sec-
tion 6114 or section 7701(b) as disclosed
on Form 8833, Treaty-Based Return Po-
sition Disclosure Under Section 6114 or
7701(b), must be completed when re-
quired by its instructions.
(5) Other:
(a) Moving Expenses: Complete Form
3903, Moving Expenses, and attach to the
return.
(b) Employee Business Expenses:
Complete Form 2106, Employee Business

December 28, 2020 1810 Bulletin No. 2020–53
Expenses (for use only by Armed Forces
reservists, qualified performing artists,
fee-basis state or local government offi-
cials, and employees with impairment-re-
lated work expenses), and attach to the
return. This section does not apply to club
dues or to travel expenses for any non-em-
ployee accompanying the taxpayer on the
trip.
(c) Fuels Credit: Complete Form 4136,
Credit for Federal Tax Paid on Fuels, and
attach to the return.
(d) Investment Credit: Complete Form
3468, Investment Credit, and attach to the
return.
SECTION 5. EFFECTIVE DATE
This revenue procedure applies to any
income tax return filed on a 2020 tax form
for a taxable year beginning in 2020 and
to any income tax return filed on a 2020
tax form in 2021 for a short taxable year
beginning in 2021.
SECTION 6. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Han Huang of the Office of
the Associate Chief Counsel (Procedure &
Administration). For further information
regarding this revenue procedure, contact
Branch 2 of Procedure and Administration
at (202) 317-6844 (not a toll free number).

Bulletin No. 2020–53 1811 December 28, 2020
NOTE. This revenue procedure will be reproduced as the next revision of IRS Publication 1167, General Rules and Specifications for Substitute Forms and
Schedules.
Rev. Proc. 2020-55
TABLE OF CONTENTS
Part 1 – INTRODUCTION TO SUBSTITUTE FORMS
Section 1.1 – Overview of Revenue Procedure 2020-55 ....................................................1812
Section 1.2 – IRS Contacts ...........................................................................1813
Section 1.3 – What’s New ............................................................................1814
Section 1.4 – Definitions .............................................................................1814
Section 1.5 – Agreement .............................................................................1816
Part 2 – GENERAL GUIDELINES FOR SUBMISSIONS AND APPROVALS
Section 2.1 – General Specifications for Approval .........................................................1817
Section 2.2 – Highlights of Permitted Changes and Requirements ............................................1818
Section 2.3 – Vouchers ..............................................................................1819
Section 2.4 – Restrictions on Changes ..................................................................1821
Section 2.5 – Guidelines for Obtaining IRS Approval ......................................................1821
Section 2.6 – Office of Management and Budget (OMB) Requirements for All Substitute Forms ....................1824
Part 3 – PHYSICAL ASPECTS AND REQUIREMENTS
Section 3.1 – General Guidelines for Substitute Forms .....................................................1825
Section 3.2 – Paper .................................................................................1827
Section 3.3 – Printing ...............................................................................1828
Section 3.4 – Margins ...............................................................................1829
Section 3.5 – Miscellaneous Information for Substitute Forms ...............................................1829
Part 4 – ADDITIONAL RESOURCES
Section 4.1 – Guidance From Other Revenue Procedures ...................................................1830
Section 4.2 – Electronic Tax Products ...................................................................1830
Part 5 – REQUIREMENTS FOR SPECIFIC TAX RETURNS
Section 5.1 – Tax Returns (Forms 1040, 1040-SR, 1120, etc.) ................................................1831
Section 5.2 – Changes Permitted to Graphics (Form 1040 or 1040-SR) ........................................1832
Part 6 – FORMAT AND CONTENT OF SUBSTITUTE RETURNS
Section 6.1 – Acceptable Formats for Substitute Forms and Schedules .........................................1833
Section 6.2 – Additional Instructions for All Forms ........................................................1834
Part 7 – MISCELLANEOUS FORMS AND PROGRAMS
Section 7.1 – Specifications for Substitute Schedules K-1 ...................................................1836
Section 7.2 – Guidelines for Substitute Forms 8655 ........................................................1841
Part 8 – ADDITIONAL INFORMATION
Section 8.1 – Forms for Electronically Filed Returns .......................................................1842
Section 8.2 – Effect on Other Documents ................................................................1843
Section 8.3 – Exhibits ...............................................................................1843

December 28, 2020 1812 Bulletin No. 2020–53
Part 1
Introduction to Substitute Forms
Section 1.1 – Overview of Revenue Procedure 2020-55
1.1.1
Purpose
The purpose of this revenue procedure is to provide guidelines and general requirements for the
development, printing, and approval of the 2020 substitute tax forms. Approval will be based on
these guidelines. After review and approval, submitted forms will be accepted as substitutes for
official IRS forms.
1.1.2
Unique Forms
1.1.3
Scope
Certain unique specialized forms require the use of other additional publications to supplement
this publication. See Part 4.
The IRS accepts quality substitute tax forms that are consistent with the official forms and have no
adverse impact on processing. The IRS Substitute Forms Program (the Program) administers the
formal acceptance and processing of these forms nationwide. While this Program deals with paper
documents, it also reviews for approval other processing and filing forms used in electronic filing.
Only those substitute forms that comply fully with these requirements are acceptable. This reve-
nue procedure is updated as required to reflect pertinent tax year form changes and to meet pro-
cessing and/or legislative requirements.
1.1.4
Forms Cover
ed by This
Revenue Procedure
The following types of forms are covered by this revenue procedure.
•
IRS tax forms and their related schedules.
• Worksheets as they appear in the instructions.
• Applications for permission to file returns electronically and forms
used as required documen-
tation for electronically filed returns.
• Powers of Attorney.
• Over-the-counter estimated tax payment vouchers.
• Forms and schedules relating to partnerships, exempt organizations,
and employee plans.
1.1.5
Forms Not Cover
ed by
This Revenue Procedure
The following types of forms are not covered by this revenue procedure.
• W
-2 and W-3 (see Pub. 1141 for information on these forms).
• W-2c and W-3c (see Pub. 1223 for information on these forms).
• 941, Schedule B (Form 941), Schedule D (Form 941), Schedule R
(Form 941), and 8974 (see
Pub. 4436 for information on these forms).
• 1096, 1097-BTC, 1098 series, 1099 series, 3921, 3922, 5498 series,
W-2G, and 1042-S (see
Pub. 1179 for information on these forms).
• 1095-A, 1094-B, 1095-B, 1094-C, and 1095-C (see Pub. 5223 for
information on these forms).

Bulletin No. 2020–53 1813 December 28, 2020
• 8027 (see Pub. 1239 for information on this form).
• Forms 1040-ES (OCR) and 1041-ES (OCR), which may not be
reproduced.
• Forms 5500 (for more information on these forms, see the Department
of Labor website at
www.efast.dol.gov).
• Forms 5300, 5307, 8717, and 8905, bar-coded forms requiring separate
approval.
• Forms used internally by the IRS.
• State tax forms.
• Forms developed outside the IRS.
1.1.6
Other Information Not
Covered by This Revenue
Procedure
The following information is not covered by this revenue procedure.
• Requests for information or documentation initiated by the IRS.
• General Instructions and Specific Instructions (these are not reviewed
by the Program).
Section 1.2 – IRS Contacts
1.2.1
Where
To Send Substitute
Forms
Send your substitute forms for approval to the following offices (do not send forms with taxpayer
data).
FormOffice and Address
5500Check EFAST2 information at the Department of
Labor website at www.efast.dol.gov
5300, 5307, 8717, and 8905
Sandra.K.Barnes@irs.gov
Software developer vouchers (see Sec-
tions 2.3.7–2.3.9)
Internal Revenue Service Attn: Doris Bethea
5000 Ellin Road, C5-226 Lanham, MD 20706
Doris.E.Bethea@irs.gov
ACA Forms 1094-B, 1095-B, 1094-C,
and 1095-C (for more information, see
Pub. 5223), and Schedule K-1 forms
must be emailed for scannability testing
scrips@irs.gov
Schedule K-1 2-D bar-coded formsFor mailing addresses for sending Schedule K-1
2-D bar-coded forms for testing, see Section 7.1.6
All others covered by this publication
(see Section 1.1.4)
Internal Revenue Service
Attn: Substitute Forms Program
SE:W:CAR:MP:P:TP
1111 Constitution Ave. NW, Room 6554
Washington, DC 20224
substituteforms@irs.gov

December 28, 2020 1814 Bulletin No. 2020–53
For questions about:
• Forms W-2 and W-3, refer to Pub. 1141, General Rules and
Specifications for Substitute Forms
W-2 and W-3;
• Forms W-2c and W-3c, refer to Pub. 1223, General Rules and
Specifications for Substitute
Forms W-2c and W-3c;
• Form 941 and Schedules B, D, and R, as well as Form 8974, refer to
Pub. 4436, General Rules
and Specifications for Substitute Form 941, Schedule B (Form 941), Schedule D (Form 941),
Schedule R (Form 941), and Form 8974;
• Forms 1096, 1097-BTC, 1098, 1099, 3921, 3922, 5498, W-2G, and
1042-S, refer to Pub. 1179,
General Rules and Specifications for Substitute Forms 1096, 1098, 1099, 5498, and Certain
Other Information Returns;
• Forms 1095-A, 1094-B, 1095-B, 1094-C, and 1095-C, refer to Pub.
5223, General Rules and
Specifications for Affordable Care Act Substitute Forms 1095-A, 1094-B, 1095-B, 1094-C, and
1095-C; and
• Form 8027, refer to Pub. 1239, Specifications for Electronic Filing of
Form 8027, Employer’s
Annual Information Return of Tip Income and Allocated Tips.
Section 1.3 – What’s New
1.3.1
What’s New
The following changes have been made to this year
’s revenue procedure.
• .01 Editorial changes. We made editorial changes throughout and
redundancies were eliminat-
ed as much as possible.
• .02 Form 1099-NEC. Beginning in tax year 2020, use Form
1099-NEC to report nonemployee
compensation. Previously, nonemployee compensation was reported on Form 1099-MISC.
• .03 Employment tax credits related to coronavirus (COVID-19).
The credits for qualified
sick and family leave are reported on the quarterly payroll tax return, Form 941. In addition, the
employee retention credit is a payroll tax credit reported on Form 941.
Section 1.4 – Definitions
1.4.1
Substitute Form
1.4.2
Printed/ Preprinted Form
A
tax form (or related schedule) that differs in any way from the official version and is intended to
replace the form that is printed and distributed by the IRS. This term also covers those approved
substitute forms exhibited in this revenue procedure.
A form produced using conventional printing processes or a printed form which has been repro-
duced by photocopying or a similar process.

Bulletin No. 2020–53 1815 December 28, 2020
1.4.3
Preprinted Pin- Fed Form
1.4.4
Computer- Prepared
Substitute Form
A printed form that has marginal perforations for use with automated and high-speed printing
equipment.
A preprinted form in which the taxpayer’s tax entry information has been inserted by a computer,
computer printer, or other computer-type equipment.
1.4.5
Computer- Generated
Substitute Tax Return or
Form
A tax return or form that is entirely designed and printed using a computer printer on plain white
paper. This return or form must conform to the physical layout of the corresponding IRS form,
although the typeface may differ. The text should match the text on the officially printed form as
closely as possible. Condensed text and abbreviations will be considered on a case-by-case basis.
Exception. All jurats (perjury statements) must be reproduced verbatim.
1.4.6
Manually Prepared Form
1.4.7
Graphics
A preprinted reproduced form in which the taxpayer’s tax entry information is entered by an indi-
vidual using a pen, pencil, typewriter, or other nonautomated equipment.
Parts of a printed tax form that are not tax amount entries or required text. Examples of graphics
are line numbers, captions, shadings, special indicators, borders, rules, and strokes created by
typesetting, photographics, photocomposition, etc.
A legible photocopy or an exact replica of an original form.
1.4.8
Acceptable Reproduced
Form
1.4.9
Supporting Statement
(Supplemental Schedule)
A
document providing detailed information to support a line entry on an official or approved sub-
stitute form and filed with (attached to) a tax return.
Note. A supporting statement is not a tax form and does not take the place of an official form.
1.4.10
Specific Form Terms
1.4.11
Format
The following specific terms are used throughout this revenue procedure in reference to all substi-
tute forms: format, sequence, line reference, item caption, and data entry field.
The overall physical arrangement and general layout of a substitute form.

1.4.12
Sequence
1.4.13
Line Refer
ence
Sequence is an integral part of the total format requirement. The substitute form should show the
same numeric and logical placement order of data as shown on the official form.
The
line numbers, letters, or alphanumerics used to identify each captioned line on an official
form. These line references are printed to the immediate left of each caption and/or data entry
field.
The text on each line of a form, which identifies the data required.
1.4.14
Item Caption
1.4.15
Data Entry Field
1.4.16
Advance Draft
Designated areas for the entry of data such as dollar amounts, quantities, responses, and check-
boxes.
A draft version of a new or revised form may be posted to the IRS website (IRS.gov/DraftForms)
for information purposes. Substitute forms may be submitted based on these advance drafts, but
any submitter that receives forms approval based on these early drafts is responsible for monitor-
ing and revising forms to mirror any revisions in the final forms provided by the IRS.
1.4.17
Approval
Generally, approval could be in writing or assumed after 20 business days from our receipt for
forms that
have not been substantially changed by the IRS. This does not apply to newly created

December 28, 2020 1816 Bulletin No. 2020–53
1.4.18
National Association
of Computerized Tax
Processors (NACTP)
or substantially revised IRS forms. However, the Program reserves the right to notify vendors of
any inaccuracies even after 20 business days have lapsed.
The National Association of Computerized Tax Processors (NACTP) is a nonprofit association
that represents tax processing software and hardware developers, electronic filing processors, tax
form publishers, tax processing service bureaus, and payroll processors. The association promotes
standards in tax processing to advance efficient and effective tax filing. For more information, see
NACTP.org.
Section 1.5 – Agreement
1.5.1
Important Stipulation of
This Revenue Procedure
Any person or company who uses substitute forms and makes all or part of the changes specified
in this revenue procedure agrees to the following stipulations.
• The IRS presumes that any required changes are made in accordance
with these procedures and
will not be disruptive to the processing of the tax return.
• Should any of the changes be disruptive to the IRS’s processing of the
tax return, the person or
company agrees to accept the determination of the IRS as to whether the form may continue to
be filed.
• The person or company agrees to work with the IRS in correcting noted
deficiencies. Notifica-
tion of deficiencies may be made by any combination of letter, email, or phone contact and may
include the request for the resubmission of unacceptable forms.
1.5.2
Response Policy and
Stipulations
The Program will email confirmation of receipt of your forms submission, if possible. Even if you
do not receive emailed confirmation of receipt, you will receive an emailed “submission receipt,”
which will provide feedback on your submission. If the Program anticipates problems in complet-
ing the review of your submission within the 20-business-day period, the Program will send an
interim email notifying you of the extended period for review.
Once the substitute forms have been approved by the Program, you can release them after the final
versions of the forms have been issued by the IRS. Before releasing the forms, you are responsible
for updating forms approved as draft and for making form changes we requested.
The policy has the following stipulations.
• This 20-business-day policy applies to electronic submissions only. It does not apply to substi-
tute submissions mailed to the Program.
• The policy applies to submissions of 15 (optimal) or fewer items and submissions containing 75
pages or less. Submissions of more than 15 items may require additional review time.
• If you send a large number of submissions within a short period of time, processing may be
delayed.
• Delays in processing could occur if the Program finds significant errors in your submission or
has experienced an increase in submissions. The Program will send you an interim email in this
case.
• Any anticipated problems in processing your submission within the 20-business-day period
will generate an interim email on or about the 15th business day.

Bulletin No. 2020–53 1817 December 28, 2020
• If any significant inaccuracies are discovered after the 20-business-day
period, the Program re-
serves the right to inform you and will require that changes be made to correct the inaccuracies.
• The policy does not apply to substantially revised forms or to new forms created by the IRS for
which you have already made an initial submission.
Part 2
General Guidelines for Submissions and Approvals
Section 2.1 – General Specifications for Approval
2.1.1
Overview
If you produce any substitute tax forms that fully comply or follow the changes specifically outlined
by the Program, then you can generate your own substitute forms without further approval. Also, if
your substitutes have received approval in the past, and there are no substantial formatting or text
changes for the tax year, then changes can be made without additional approval. If your changes are
more extensive, you must get IRS approval before using substitute forms. More extensive changes
include different font style, decreasing or increasing the font size of caption titles, adjusting or omit-
ting format/layout elements, changing page orientation, repositioning line items, tables, and legends.
2.1.2
Email Submissions
The Program accepts submissions of substitute forms for review and approval via email. The
email address
is substituteforms@irs.gov. Please include the term “PDF Submissions” on the
subject line.
Follow these guidelines.
• Email submission should include all the forms you wish to submit in
one Portable Document
Format (PDF) file. Do not email or attach each form individually.
• The emailed submission should include a maximum of 3 PDFs to
include: a checksheet, a cover
letter or accompanying statement, and a single PDF that includes all of the forms listed on your
checksheet, cover letter, or accompanying statement.
• A submission should contain a maximum of 15 forms.
• An approval checksheet listing the forms you are submitting should
always be included in the
PDF file along with the forms. Excluding the checksheet can slow the reviewing process down,
which can result in a delayed response to your submission. See a sample checksheet in Exhibit B.
• Optimize PDF files before submitting.
• The maximum allowable email attachment is 2.5 megabytes.
• The Program accepts zip files.
• To alleviate delays during the peak time of September through
December, submit advance draft
forms as early as possible.
If the guidelines are not followed, you may need to resubmit.
Emailing PDF submissions will not expedite review and approval. Submitting your substitute
forms package via email is the preferred and suggested method for submitting forms for review. If,
for some reason, you are not able to email your submission(s), you can mail your submission(s) to:

December 28, 2020 1818 Bulletin No. 2020–53
2.1.3
Expediting the Process
Internal Revenue Service
Attn: Substitute Forms Program
SE:W:CAR:MP:P:TP
1111 Constitution Ave. NW, Room 6554
Washington, DC 20224
Follow these basic guidelines for expediting the process.
• Always include a checksheet for the Program’s response.
• Include an accompanying statement identifying most, if not all, of the deviations your substitute
forms may include which the official IRS version of the form does not.
• Follow the guidance in this publication for general substitute form guidelines. Follow the guid-
ance in specialized publications produced by the Program for other specific forms.
• To spread out the workload, send in draft versions of substitute forms when they are posted.
Note. Be sure to make any changes to approved drafts before releasing final versions.
2.1.4
Schedules
2.1.5
Examples of Schedules That
Must Be Submitted With
the Return
2.1.6
Examples of Schedules
That Can Be Submitted
Separately
2.1.7
Use and Distribution of
Unapproved Forms
Schedules are considered to be an integral part of a complete tax return. A schedule may be includ-
ed as part of a form or printed separately
.
Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, is an example
of this situation. Its Schedules A through U have pages numbered as part of the basic return. For
Form 706 to be considered for approval, the entire form, including Schedules A through U, as well
as Schedule PC, must be submitted.
Schedules C, D, and E for Form 1040 or 1040-SR are examples of schedules that can be submitted
separately. Although printed by the IRS as a supplement to Form 1040 or 1040-SR, none of these
schedules are required to be filed with Form 1040 or 1040-SR. These schedules may be separated
from Form 1040 or 1040-SR and submitted as substitute forms.
The IRS is continuing a program to identify and contact tax return preparers, forms developers,
and software publishers who use or distribute unapproved forms that do not conform to this reve-
nue procedure. The use of unapproved forms hinders the processing of the returns.
Section 2.2 – Highlights of Permitted Changes and Requirements
2.2.1
Methods of Reproducing
IRS Forms
There
are methods of reproducing IRS printed tax forms suitable for use as substitutes without
prior approval.
• You can photocopy most tax forms and use them instead of the official ones. The entire substi-
tute form, including entries, must be legible.
• You can reproduce any current tax form as cut sheets, snap sets, and marginally punched, pin-
fed forms as long as you use an official IRS version as the master copy.
• You can reproduce a form that requires a signature as a valid substitute form. Many tax forms
(including returns) have a taxpayer signature requirement as part of the form layout. The jurat/
perjury statement/ signature line areas must be retained and worded exactly as on the official
form. The requirement for a signature, by itself, does not prohibit a tax form from being prop-
erly computer generated.

Bulletin No. 2020–53 1819 December 28, 2020
Section 2.3 – Vouchers
2.3.1
Overview
All payment vouchers (Forms 940-V, 941-V, 943-V, 944-V, 945-V, 1040-ES, 1040-V, 1041-V,
and 2290-V) must be reproduced in conjunction with their forms. Substitute vouchers must be
the same size as the officially printed vouchers. Vouchers that are prepared for printing on a laser
printer may include a scan line.
2.3.2
Scan Line Specifications
NNNNNNNNNAAXXXXNNNNNNNNNNNN
Item:ABCDEF
G
A.Social Security Number/Employer Identification Number (SSN/EIN) has 9 nu-
meric (N) spaces.
B.Check Digits have 2 alpha (A) spaces.
C.Name Control has 4 alphanumeric (X) spaces.
D.
Master File Tax (MFT) Code has 2 numeric (N) spaces (see Section 2.3.3).
E.Taxpayer Identification Number (TIN) Type has 1 numeric (N) space (see
Section 2.3.4).
F.Tax Period has 6 numeric (N) spaces in year/month format (YYYYMM).
G.Transaction Code has 3 numeric (N) spaces.
2.3.3
MFT
Code
Code Number for Forms:
• 1040 (family) – 30,
• 940 – 10,
• 941 – 01,
• 943 – 11,
• 944 – 14,
• 945 – 16,
• 1041-V – 05,
• 2290 – 60, and
• 4868 – 30.
2.3.4
TIN Type
Type Number for:
• Form 1040 (family), 4868 – 0; and
• Forms 940, 941, 943, 944, 945, 1041-V, and 2290 – 2.
2.3.5
Voucher
Size
The voucher size must be exactly 8.0′′ x 3.25′′ (Forms 1040-ES and 1041-ES must be 7.625′′ x
3.0′′). The document scan line must be vertically positioned 0.25 inches from the bottom of the
scan line to the bottom of the voucher. The last character on the right of the scan line must be
placed 3.5 inches from the right leading edge of the document. The minimum required horizontal

December 28, 2020 1820 Bulletin No. 2020–53
2.3.6
Print and Paper Weight
clear space between characters is 0.014 inches. The line to be scanned must have a clear band 0.25
inches in height from top to bottom of the scan line, and from border to border of the document.
“Clear band” means no printing except for dropout ink.
Vouchers must be imaged in black ink using OCR A, OCR B, or Courier 10. These fonts may not
be mixed in the scan line. The horizontal character pitch is 10 CPI. The preferred paper weight is
20 to 24 pound OCR bond.
2.3.7
Specifications for Software
Developers
Certain vouchers may be reproduced for use in the IRS lockbox system. These include the 1040-V,
1040-ES, 1041-V
, the 94X family, and 2290 vouchers. Software developers must follow these spe-
cific guidelines to produce scannable vouchers strictly for lockbox purposes. Also see Exhibit A.
• The total depth must be 3.25 inches.
• The scan line must be 0.5 inches from the bottom edge and 1.75 inches
from the left edge of the
voucher and left justified.
• Software developers’ vouchers must be 8.5 inches wide (instead of 8
inches with a cut line).
Therefore, no vertical cut line is required.
• Scan line positioning must be exact.
• Do not use the over-the-counter format voucher and add the scan line
to it.
• All scanned data must be in 12-point OCR A font.
• The 4-digit NACTP ID code or IRS source code should be placed
under the payment indicator
arrow.
• Windowed envelopes must not display the scan line in order to avoid
disclosure and privacy
issues.
Note. All software developers must ensure that their software uses OCR A font so taxpayers will
be able to print the vouchers in the correct font.
2.3.8
Specific Line Positions
Follow these line specifications for entering taxpayer data in the lockbox vouchers.
Start Start WidthEnd
RowColumnColumn
Line Specifications for Taxpayer Data:
Taxpayer Name5663641
Taxpayer Address, Apt.5763641
Taxpayer City, State, ZIP5863641
Foreign Country Name5963641
Foreign Province/County6061722
Foreign Postal Code60261641
Line Specifications for Mail To Data:
Mail Name56433880
Mail Address57433880
Mail City, State, ZIP58433880
Line Specifications for:
Scan Line6326n/an/a

Bulletin No. 2020–53 1821 December 28, 2020
2.3.9
How To Get Approval
To receive approval, the following procedures are in effect due to Covid-19.
Please send an approval sheet with each form type for IRS signature to Doris Bethea at Do-
ris.E.Bethea@irs.gov. You should include in the email an example of each type of voucher the site
will be testing. Note. Do not mail any test vouchers to Doris Bethea.
You are required to send 25 voucher samples of each form in PDF format. You should email the
test vouchers to raul.t.mariduena@jpmorgan.com. You can also print the vouchers and send them
to his mailing address at:
JP Morgan Chase
Attn: Raul Mariduena
830 Tyvola Road, Suite 114
Charlotte, NC 28217
To receive approval under regular circumstances, please send in 25 voucher samples yearly for
each form type or scenario, by December 10, 2021, for testing to the following address.
Internal Revenue Service
Attn: Doris Bethea, C5-226
5000 Ellin Road
Lanham, MD 20706
For further information, contact Doris Bethea, Doris.E.Bethea@irs.gov, at 240-613-5922 (not toll
free), or Kathryn Wheelock, Kathryn.F.Wheelock@irs.gov, at 816-499-4443 (not toll free).
Section 2.4 – Restrictions on Changes
2.4.1
What You Cannot Do
to Forms Suitable for
Substitute Tax Forms
You cannot, without prior IRS approval, change any IRS tax form or use your own (nonapproved)
versions including graphics, unless specifically permitted by this revenue procedure. See Sections
2.5.7 through 2.5.11.
You cannot adjust any of the graphics on Form 1040 or 1040-SR (except in those areas specified
in Part 5 of this revenue procedure) without prior approval from the Program.
You cannot rearrange or redistribute data entry fields, and/or allow data entry fields to flow from
one page onto the next (that is, each page of a substitute form must contain the exact number of
data entry fields as there are on the official IRS form). The order of information on the substitute
form must be identical to the IRS version of the form. Publications for specific substitute forms
will state allowances for those respective forms.
Note. The 20-business-day turnaround policy may not apply to extensive changes.
Section 2.5 – Guidelines for Obtaining IRS Approval
2.5.1
Basic Requirements
Preparers who submit substitute privately designed, privately printed, computer-generated, or
computer-prepared tax forms must develop these substitutes using the guidelines established in

December 28, 2020 1822 Bulletin No. 2020–53
2.5.2
Conditional Approval
Based on Advance Drafts
this part. These forms, unless there is an exception outlined by the revenue procedure, must be
approved by the IRS before being filed.
The IRS cannot grant final approval of your substitute form until the official form has been pub-
lished. However, the IRS posts advance draft forms on its website at IRS.gov/DraftForms.
We encourage submission of proposed substitutes of these advance draft forms and will grant con-
ditional approval based solely on these early drafts. These advance drafts are subject to significant
change before forms are finalized. If these advance drafts are used as the basis for your substitute
forms, you will be responsible for subsequently updating your final forms to agree with the final
official version. These revisions need not be resubmitted for further approval.
Note. Approval of forms based on advance drafts will not be granted after the final version of an
official form is published.
2.5.3
Submission Procedures
Follow these general guidelines when submitting substitute forms for approval.
• Any alteration of forms must be within the limits acceptable to the IRS.
It is possible that, from
one filing period to another, a change in law or a change in internal need (processing, audit,
compliance, etc.) may change the allowable limits for the alteration of the official form.
• When approval of any substitute form (other than those exceptions
specified in Part 1, Section
1.2 – IRS Contacts) is requested, a sample of the proposed substitute form should be emailed
for consideration to the Program at the address shown in Section 1.2.1.
• Schedules and forms (for example, Forms 3468, 4136, etc.) that can be
used with more than
one type of return (for example, Forms 1040, 1040-SR, 1041, 1120, etc.) should be submitted
only once for approval, without regard to the number of different tax returns with which they
may be associated. Also, all pages of multi-page forms or returns should be submitted in the
same package.
2.5.4
Approving Offices
Because only the Program is authorized to approve substitute forms, unnecessary delays may
occur if forms are sent to the wrong office. You may receive an interim letter about the delay. The
Program may then coordinate the response with the originator responsible for revising that partic-
ular form. Such coordination may include allowing the originator to officially approve the form.
No IRS office is authorized to allow deviations from this revenue procedure.
2.5.5
IRS Review of Softwar
e
Programs, etc.
The IRS does not review or approve the logic of specific software programs, nor does the IRS
confirm the calculations on the forms produced by these programs. The accuracy of the program
remains the responsibility of the software package developer, distributor, or user.
The Program is primarily concerned with the pre-filing quality review of the final forms that are
expected to be processed by IRS field offices. For this purpose, you should submit forms without
including any taxpayer information such as names, addresses, monetary amounts, etc.
If the software used is programmed to produce copies with populated fields, then you must use
dummy information. This will allow the Program to review and provide feedback or approval.
Vendors should use “0” for all number values and “X” for any information that requires alpha
characters.
2.5.6
When To Send Proposed
Substitutes
Proposed substitutes, which are required to be submitted per this revenue procedure, should be
sent as much in advance of the filing period as possible. This is to allow adequate time for analysis
and response.
2.5.7
Accompanying Statement
When submitting sample substitutes, you should include an accompanying statement that lists
each form number and its changes from the official form (position, arrangement, appearance, line

Bulletin No. 2020–53 1823 December 28, 2020
numbers, additions, deletions, etc.). With each of the items, you should include a detailed reason
for the change.
When requesting approval, please include a checksheet. Checksheets expedite the approval pro-
cess. The checksheet may look like the example in Exhibit B displayed in the back of this pro-
cedure or may be one of your own design. Please include your email address on the checksheet.
2.5.8
Approval/ Nonapproval
Notice
The Program will email the checksheet or an approval letter to the originator, unless:
• The requester has asked for a formal letter, or
• Significant corrections to the submitted forms are required.
Notice of approval may impose qualifications before using the substitutes. Notices of unapproved
forms may specify the changes required for approval and require resubmission of the form(s) in
question. When appropriate, you will be contacted by telephone.
2.5.9
Duration of Approval
Most signature tax returns and many of their schedules and related forms have the tax (liability)
year printed in the upper right corner. Approvals for these annual forms are usually good for 1
calendar year (January through December of the year of filing). Quarterly tax forms in the 94X
series and Form 720 require approval for any quarter in which the form has been revised.
Because changes are usually made to an annual form every year, each new filing season generally
requires a new submission of a substitute form. Very rarely is updating the preprinted year the only
change made to an annual form. However, if no significant content, formatting, or layout changes
were made to a tax form, then review and approval received for the prior tax year can be carried
over into the current tax year.
2.5.10
Limited Continued Use of
an Approved Change
Limited changes approved for one tax year may be allowed for the same form in the following tax
year. Examples are the use of abbreviated words, revised form spacing, compressed text lines, and
shortened captions, etc., which do not change the integrity of lines or text on the official forms.
If the vendor or filer makes substantial changes to the form, new substitutes must be submitted
for approval. If the vendor or filer makes only minor editorial changes to the form, or makes any
changes that mirror changes the IRS makes to the form’s official version, the new substitute does
not need to be submitted for approval. It is the responsibility of each vendor who has been granted
permission to produce substitute forms to monitor and revise forms to mirror any revisions to the
official forms made by the IRS. If there are any questions, please contact the Program.
2.5.1
1
When Approval Is Not
Required
If you received approval for a specific change on a form last year, you may make the same change
this year if the item is still present on the official form.
• The new substitute form does not have to be submitted to the IRS and
approval based on that
change is not required.
• However, the new substitute form must conform to the official current
year IRS form in other
respects, such as date, Office of Management and Budget (OMB) approval number, attachment
sequence number, Paperwork Reduction Act Notice statement, arrangement, item caption, line
number, line reference, data sequence, etc.
• The new substitute form must also comply with changes to the
guidelines in this revenue proce-
dure. The procedure may have eliminated, added to, or otherwise changed the guideline(s) that
affected the change approved in the prior year.
• An approved change is authorized only for the period from a prior tax
year substitute form to a
current tax year substitute form.

December 28, 2020 1824 Bulletin No. 2020–53
2.5.12
Required Copies
Exception. Forms with temporary, limited, or interim approvals (or with approvals that state a
change is not allowed in any other tax year) are subject to review in subsequent years.
Generally, you must send us one copy of each form being submitted for approval. However, if
you are producing forms for different computer platforms (for example, Microsoft vs. Apple),
different tax preparation software (for example, TurboTax® vs. TaxSlayer®), or different types
of printers (for example, inkjet vs. impact), and these forms differ significantly in appearance,
submit one copy for each type of platform, tax preparation software, or printer.
2.5.13
Requestor’s Responsibility
Following receipt of an initial approval for a substitute forms package or a software output pro-
gram to print substitute forms, it is the responsibility of the originator (designer or distributor) to
provide client firms or individuals with forms that meet the IRS’s requirements for continuing
acceptability. Examples of this responsibility include:
• Using the prescribed print paper, font size, legibility, state tax data
deletion, etc.; and
• Informing all users of substitute forms of the legal requirements of the
Paperwork Reduction
Act Notice, which is generally found in the instructions for the official IRS forms.
2.5.14
Source Code
The Program will assign a unique source code to each firm that submits substitute forms for ap-
proval. This source code will be a permanent identifier that must be used on every submission by
a particular firm.
The source code consists of three alpha characters and should generally be printed under or to
the left of the “Paperwork Reduction Act” statement. Vendors must ensure that the source code is
not printed too close to or within the left or bottom
1
/2-inch margin to avoid the source code from
being cut off during printing.
Section 2.6 – Office of Management and Budget (OMB) Requirements for All Substitute Forms
2.6.1
OMB Requir
ements for All
Substitute Forms
There are legal requirements of the Paperwork Reduction Act of 1995 (the Act). Public Law 104-
13 requires the following.
• OMB approves all IRS tax forms that are subject to the Act.
• Each IRS form contains (in the upper right corner) the OMB number, if
assigned.
• Each IRS form (or its instructions) states why the IRS needs the
information, how it will be
used, and whether or not the information is required to be furnished to the IRS.
This information must be provided to every user of official or substitute IRS forms or instructions.
2.6.2
Application of the
Paperwork Reduction Act
On forms that have been assigned OMB numbers:
• All substitute forms must contain in the upper right corner the OMB
number that is on the
official form, and
• The required format is: OMB No. 1545-XXXX (preferred) or OMB #
1545-XXXX (accept-
able).
2.6.3
Requir
ed Explanation to
Users
You must inform the users of your substitute forms of the IRS use and collection requirements
stated in the instructions for official IRS forms.

Bulletin No. 2020–53 1825 December 28, 2020
• If you provide your users or customers with the official IRS
instructions, each form must retain
either the Paperwork Reduction Act Notice (or Disclosure, Privacy Act, and Paperwork Reduc-
tion Act Notice), or a reference to it as the IRS does on the official forms (usually in the lower
left corner of the forms).
• This notice reads, in part, “We ask for tax return information to carry
out the tax laws of the
United States.”
Note. If no IRS instructions are provided to users of your forms, the exact text of the Paperwork
Reduction Act Notice (or Disclosure, Privacy Act, and Paperwork Reduction Act Notice) must be
furnished separately or on the form.
2.6.4
Finding the OMB Number
and Paperwork Reduction
Act Notice
The OMB number and the Paperwork Reduction Act Notice, or references to it, may be found
printed on an official form (or its instructions). The number and the notice are included on the
official paper format and in other formats produced by the IRS.
Part 3
Physical Aspects and Requirements
Section 3.1 – General Guidelines for Substitute Forms
3.1.1
General Information
The official form is the standard. Because a substitute form is a variation from the official form,
you should know the requirements of the official form for the year of use before you modify it to
meet your needs. To obtain the most frequently used tax forms, visit IRS.gov/OrderForms.
Each form must follow the design of the official form as to format arrangement, item caption, line
numbers, line references, and sequence.
Generally, state tax information must not appear on the federal tax return, associated form, or
schedule that is filed with the IRS. Exceptions occur when amounts are claimed on, or required by,
the federal return (for example, state and local income taxes on Schedule A
(Form 1040)).
3.1.2
Design
3.1.3
State T
ax Information
Prohibited
3.1.4
Vertical Alignment of
Amount Fields
IF a form is to be...THEN...
manually prepared and
the official IRS form still
has a separate cents entry
field
1.the entry column must have a vertical line or some type of
indicator in the amount field to separate dollars from cents.
2.the cents column must be at least 3/10′′ wide.
computer generated1.vertically align the amount entry fields where possible.
2.use one of the following amount formats.
a) 0,000,000.
b) 0,000,000.00.
computer prepared1.you may remove the vertical line in the amount field that sep-
arates dollars from cents.
2.use one of the following amount formats.
a) 0,000,000.
b) 0,000,000.00.

December 28, 2020 1826 Bulletin No. 2020–53
3.1.5
Attachment Sequence
Number
Many individual income tax forms have a required “attachment sequence number” located just
below the year designation in the upper right corner of the form. The IRS uses this number to
indicate the order in which forms are to be attached to the tax return for processing. Some of the
attachment sequence numbers may change from year to year.
The following applies to computer-prepared forms.
• The sequence number may be printed in no less than 12-point boldface
type and centered below
the form’s year designation.
• The sequence number may also be placed following the year
designation for the tax form and
separated with an asterisk.
• The actual number may be printed without labeling it the “Attachment
Sequence Number.”
3.1.6
Assembly of Forms
When developing software or forms for use by others, please inform your customers/clients that
the order in which the forms are arranged may affect the processing of the package. A return must
be arranged in the order indicated below.
IF the form is...THEN the sequence is...
1040 or 1040-SR
• Form 1040 or 1040-SR, and schedules and forms in attachment
sequence number order.
any other tax return (Form
1120, 1120-S, 1065, 1041,
etc.)
• the tax returns, directly associated schedules (Schedule D, etc.),
directly associated forms, additional schedules in alphabetical
order, and additional forms in numerical order.
Supporting statements should then follow in the same sequence as the forms they support. Addi-
tional information required should be attached last.
In this way, the forms are received in the order in which they must be processed. If you do not send
returns to the IRS in order, processing may be delayed.
3.1.7
Paid Preparer’s
Information and Signature
Area
3.1.8
Some Common Reasons
for Requiring Changes to
Substitute Forms
On Forms 1040, 1040-SR, 1120, and any other applicable tax forms, the “Paid Preparer Use Only”
area may not be rearranged or relocated. You may, however, add three extra lines to the paid
preparer’s address area, and remove the horizontal rules in that area without prior approval. This
applies to other tax forms as well.
Some reasons that substitute form submissions may require changes include the following.
• Shading areas incorrectly.
• Failing to include a reference to the location of the Paperwork
Reduction Act Notice.
• Not including parentheses for losses.
• Not including “Attach Statement” when appropriate.
• Including line references or entry spaces that do not match the official
form.
• Printing text that is different from the official form.
• Altering the jurat (perjury statement).
• Having an incorrect OMB number.
• Including the IRS catalog number (Cat. No.) on the form.

Bulletin No. 2020–53 1827 December 28, 2020
• Failing to include preprinted amounts in entry fields.
• Missing IRS source code or NACTP software ID.
• Incorrect dimensions.
Section 3.2 – Paper
3.2.1
Paper
Content
The paper must be:
• Chemical wood writing paper that is equal to or better than the quality
used for the official form,
• At least 18 pound (17′′ x 22′′, 500 sheets), or
• At least 50 pound offset book (25′′ x 38′′, 500 sheets).
3.2.2
Paper With Chemical
Transfer Properties
There are several kinds of paper prohibited for substitute forms. These are:
1. Carbon-bonded paper, and
2. Chemical transfer paper except when the following specifications are met.
a. Each ply within the chemical transfer set of forms must be labeled.
b. Only the top ply (ply one and white in color), the one that contains chemical on the back
only (coated back), may be filed with the IRS.
Example. A set containing three plies would be constructed as follows: ply one (coated back),
“Federal Return, File with IRS”; ply two (coated front and back), “Taxpayer’s copy”; and ply
three (coated front), “Preparer’s copy.”
The file designation, “Federal Return, File with IRS” for ply one, must be printed in the bottom
right margin (just below the last line of the form) in 12-point boldface type.
It is not mandatory, but recommended, that the file designation “Federal Return, File with IRS” be
printed in a contrasting ink for visual emphasis.
3.2.3
Paper
and Ink Color
3.2.4
Page Size
It is preferred that the color and opacity of paper substantially duplicates that of the original form.
This means that your substitute must be printed in black ink and may be on white or on the colored
paper the IRS form is printed on. Form 1040 or 1040-SR substitute reproductions may be in black
ink without the colored shading. The only exception to this rule is Form 1041-ES, which should
be printed with a PMS 100 yellow shading in the color screened area. This is necessary to assist
us in expeditiously separating this form from the very similar Form 1040-ES.
Substitute or reproduced forms and computer-prepared/-generated substitutes may be the same
size as the official form or they may be the standard commercial size (8.5′′ x 11′′). The thickness
of the stock cannot be less than 0.003 inches.

December 28, 2020 1828 Bulletin No. 2020–53
Section 3.3 – Printing
3.3.1
Printing Medium
3.3.2
Legibility
The private printing of all substitute tax forms must be by conventional printing processes, photo-
copying, computer graphics, or similar reproduction processes.
All forms must have a high standard of legibility as to printing, reproduction, and fill-in matter.
Entries of taxpayer data may be no smaller than 8 points. The IRS reserves the right to reject those
with poor legibility. The ink and printing method used must ensure that no part of a form (includ-
ing text, graphics, data entries, etc.) develops “smears” or similar quality deterioration. This stan-
dard must be followed for any subsequent copies or reproductions made from an approved master
substitute form, either during preparation or during IRS processing.
3.3.3
Type Font
3.3.4
Print Spacing
Many federal tax forms are printed using “Helvetica” as the basic type font. It is preferred that you
use this type font when composing substitute forms.
Substitute forms should be printed using a 6 lines/inch vertical print option. They should also be
printed horizontally in 10-pitch pica (that is, 10 print characters per inch) or 12-pitch elite (that is,
12 print positions per inch).
3.3.5
Image Size
The image size of a printed substitute form should be as close as possible to that of the official
form. You may omit any text on both computer-prepared and computer-generated forms that is
solely instructional.
3.3.6
Title Area Changes
To allow a large top margin for marginal printing and more lines per page, the title line(s) for all
substitute forms (not including the form’s year designation and sequence number, when present)
may be photographically reduced by 40% or reset as one line of type. When reset as one line, the
type size may be no smaller than 14-point. You may omit “Department of the Treasury—Internal
Revenue Service” and all references to instructions in the form’s title area.
3.3.7
Remove Government
Printing Office Symbol and
IRS Catalog Number
When privately printing substitute tax forms, the Government Printing Office (GPO) symbol and/
or jacket number must be removed. In the same place using the same type size, print the Employer
Identification Number (EIN) of the printer or designer or the IRS-assigned source code. (We pre-
fer this last number be printed in the lower left area of the first page of each form.) Also, remove
the IRS catalog number (Cat. No.) and the recycle symbol if the substitute is not produced on
recycled paper.
3.3.8
Printing Single Page Forms
Substitute single page forms should be reproduced the same as IRS single page forms. Other
forms or schedules should not be printed on the back or on blank portions of a single page form.
However, printing instructions on the back or on blank portions of a single page form is accept-
able.
3.3.9
Photocopy Equipment
The IRS does not undertake to approve or disapprove the specific equipment or process used in re-
producing official forms. Photocopies of forms must be entirely legible and satisfy the conditions
stated in this and other revenue procedures.
3.3.10
Repr
oductions
Reproductions of official forms and substitute forms that do not meet the requirements of this
revenue procedure may not be filed instead of the official forms. Illegible photocopies are subject
to being returned to the filer for resubmission of legible copies.
3.3.11
Removal of Instructions
Generally, you may remove references to instructions. No prior approval is needed. However, in
some instances, you may be requested to include references to instructions.

Bulletin No. 2020–53 1829 December 28, 2020
Exception. The words “For Paperwork Reduction Act Notice, see instructions” must be retained,
or a similar statement indicating the location of the Notice must be provided on each form.
Section 3.4 – Margins
3.4.1
Margin Size
The format of a reproduced tax form when printed on the page must have margins on all sides at
least as large as the margins on the official form. This allows room for IRS employees to make
necessary entries on the form during processing.
• A 1/2-inch to 1/4-inch margin must be maintained across the top, bottom, and both sides of all
substitute forms.
• The marginal, perforated strips containing pin-fed holes must be
removed from all forms prior
to filing with the IRS.
3.4.2
Marginal Printing
Prior approval is not required for the marginal printing allowed when printed on an official form
or on a photocopy of an official form.
• With the exception of the actual tax return forms (for example, Forms
1040, 1040-SR, 1120,
940, 941, etc.), you may print in the left vertical margin and in the left half of the bottom margin.
• Printing is never allowed in the top right margin of the tax return form
(for example, Forms
1040, 1040-SR, 1120, 940, 941, etc.). The IRS uses this area to imprint a Document Locator
Number for each return. There are no exceptions to this requirement.
Section 3.5 – Miscellaneous Information for Substitute Forms
3.5.1
Filing Substitute Forms
3.5.2
Caution to Softwar
e
Publishers
To be acceptable for filing, a substitute form must print out in a format that will allow the filer to
follow the same instructions that accompany official forms. The form must be legible, must be on
the appropriately sized paper, and must include a jurat (perjury statement) where one appears on
the published form.
The IRS has received returns produced by software packages with approved output where either
the form heading was altered or the lines were spaced irregularly. This produces an illegible or
unrecognizable return or a return with the wrong number of pages. We realize that many of these
problems are caused by individual printer differences but they may delay input of return data and,
in some cases, generate correspondence to the taxpayer. Therefore, in the instructions to the pur-
chasers of your product, both individual and professional, please stress that their returns will be
processed more efficiently if they are properly formatted. This includes:
• Having the correct form numbers, six-digit form identifying numbers,
and titles at the top of
the return; and
• Submitting the same number of pages as if the form were an official
IRS form with the line
items on the proper pages.

December 28, 2020 1830 Bulletin No. 2020–53
3.5.3
Caution to Producers of
Software Packages
3.5.4
Programming to Print
Forms
If you are producing a software package that generates name and address data onto the tax re-
turn, do not, under any circumstances, program either the IRS preprinted check digits or a practi-
tioner-derived name control to appear on any return prepared and filed with the IRS.
Whenever applicable:
• Use only the following label information format for single filers: JOHN Q. DOE 000 OAK
DRIVE HOMETOWN, STATE 00000
• Use only the following information for joint filers: JOHN Q. DOE MARY Q. DOE 000 OAK
DRIVE HOMETOWN, STATE 00000
• Use “0” for number values and “X” for alpha characters entered in data entry fields as dummy
copy.
Part 4
Additional Resources
Section 4.1 – Guidance From Other Revenue Procedures
4.1.1
General
The IRS publications listed below provide guidance for substitute tax forms not covered in this
revenue procedure. These publications are available on the IRS website. Use the publication num-
ber listed below to search for the requested document.
• Pub. 1141, General Rules and Specifications for Substitute Forms W-2
and W-3.
• Pub. 1179, General Rules and Specifications for Substitute Forms
1096, 1098, 1099, 5498, and
Certain Other Information Returns.
• Pub. 1223, General Rules and Specifications for Substitute Forms
W-2c and W-3c.
• Pub. 4436, General Rules and Specifications for Substitute Form 941,
Schedule B (Form 941),
Schedule D (Form 941), Schedule R (Form 941), and Form 8974.
• Pub. 5223, General Rules and Specifications for Affordable Care Act
Substitute Forms 1095-A,
1094-B, 1095-B, 1094-C, and 1095-C.
Section 4.2 – Electronic Tax Products
4.2.1
The
IRS Website
Copies of tax forms, their instructions, publications, fillable forms, and prior year forms and pub-
lications may be found on the IRS website at IRS.gov/FormsPubs.
Draft forms and instructions may be found at IRS.gov/DraftForms. Other tax-related information
may be found at IRS.gov.

Bulletin No. 2020–53 1831 December 28, 2020
4.2.2
System Requirements
and Ordering Forms and
Instructions
For system requirements, contact the National Technical Information Service (NTIS) at NTIS.gov.
Prices are subject to change.
You can order IRS forms and other tax material at IRS.gov/OrderForms.
Part 5
Requirements for Specific Tax Returns
Section 5.1 – Tax Returns (Forms 1040, 1040-SR, 1120, etc.)
5.1.1
Acceptable Forms
Tax return forms (such as Forms 1040, 1040-SR, and 1120) require a signature and establish tax
liability. Computer-generated versions are acceptable under the following conditions.
• These substitute forms must be printed on plain white paper.
• Substitute forms must conform to the physical layout of the
corresponding IRS form although
the typeface may differ. The text should match the text on the officially published form as close-
ly as possible. Condensed text and abbreviations will be considered on a case-by-case basis.
Caution. All jurats (perjury statements) must be reproduced verbatim. No text can be added,
deleted, or changed in meaning.
• Various computer graphic print media such as laser printing, inkjet
printing, etc., may be used
to produce the substitute forms.
• The substitute form must be the same number of pages and contain the
same line text as the
official form.
• All substitute forms must be submitted for approval prior to their
original use. You do not need
approval for a substitute form if its only change is the preprinted year and you had received a
prior year approval letter. Exception. If the approval letter specifies a one-time exception for
your form, the next year’s form must be approved.
5.1.2
Prohibited Forms
The following are prohibited.
• Computer-generated tax forms (for example, Form 1040, 1040-SR,
etc.) on lined or color-barred
paper.
• Tax forms that differ from the official IRS forms in a manner that
makes them nonstandard or
unable to process.
5.1.3
Changes Permitted to Form
1040
Certain changes (listed in Section 5.2) are permitted to the graphics of the form without prior ap-
proval, but these changes apply to only acceptable preprinted forms. Changes not requiring prior
approval are good only for the annual filing period, which is the current tax year. Such changes are
valid in subsequent years only if the official form does not change.
5.1.4
Other
Changes Not Listed
All changes not listed in Section 5.2 require approval from the IRS before the form can be filed.

December 28, 2020 1832 Bulletin No. 2020–53
Section 5.2 – Changes Permitted to Graphics (Form 1040 or 1040-SR)
5.2.1
Adjustments
You may make minor vertical and horizontal spacing adjustments to allow for computer or word
processing printing. This includes widening the amount columns or tax entry areas if the adjust-
ments comply with other provisions stated in revenue procedures. No prior approval is needed for
these changes.
Schedules 1–3 cannot be combined for filing purposes. For the client copy of the return, the num-
bered schedules may be printed two to a page (for example, Schedule 3 below Schedule 2, if both
are completed as part of the return). If numbered schedules are combined on the client copy, it
must include a statement that it is “Not for Filing.”
5.2.2
Name and Address Area
The horizontal rules and instructions within the name and address area may be removed and the
entire area left blank. No line or instruction can remain in the area. The heavy-ruled border (when
present) that outlines the name, address area, and social security number must not be removed,
relocated, expanded, or contracted.
5.2.3
Required Format
When the
name and address area is left blank, the following format must be used when printing
the taxpayer’s name and address.
• 1st name line (35 characters maximum).
• 2nd name line (35 characters maximum).
• In-care-of name line (35 characters maximum).
• City, state (25 characters maximum), one blank character, and ZIP
code.
5.2.4
Conventional Name and
Address Data
When there is no in-care-of name line, the name and address will consist of only three lines (single
filer) or four lines (joint filer). Name and address (joint filer) with no in-care-of name line:
JOHN Q. DOE
MARY Q. DOE
000 ANYWHERE ST., APT. 000
ANYTOWN, STATE 00000
Example of in-care-of name line. Name and address (single filer) with in-care-of name line:
JOHN Q. DOE
C/O JOHN R. DOE
0000 SOMEWHERE AVE.
SAMETOWN, STATE 00000
5.2.5
SSN and Employer
Identification Number
(EIN) Ar
ea
5.2.6
Entering Cents
The broken vertical lines separating the format arrangement of the SSN/EIN may be removed.
When the vertical lines are removed, the SSN and EIN formats must be 000-00-0000 or 00-
0000000, respectively.
•
You may remove the vertical rule that separates the dollars from the
cents if it is still included
on the official IRS form.

Bulletin No. 2020–53 1833 December 28, 2020
• All entries in the amount column should have a decimal point
following the whole dollar
amounts whether or not the vertical line that separates the dollars from the cents is present.
• You may omit printing the cents, but all amounts entered on the form
must follow a consistent
format. You are strongly urged to round off the figures to whole dollar amounts, following the
official form instructions.
• When several amounts are added together, the total should be rounded
off after addition (that is,
individual amounts should not be rounded off for computation purposes).
• When printing money amounts, you must use one of the following
formats: (a) 0,000,000; (b)
0,000,000.00.
• When there is no entry for a line, leave the line blank.
5.2.7
Changes to Lines
5.2.8
Dependents on Form 1040
5.2.9
Other Lines
5.2.10
Form 1040 – Tax
No prior approval is needed for the following changes (for use with computer-prepared forms
only). Specific line numbers in the following headings may have changed due to tax law changes.
The vertical lines separating columns (1) through (4) may be removed. The captions may be short-
ened to allow a one-line caption for each column.
Any other line with text that takes up two or more vertical lines may be compressed to one line by
using contractions, etc., and by removing instructional references.
You may change the line caption to read “Tax” and computer print the words “Total includes tax
from” and either “Form(s) 8814” or “Form 4972” or “962 election.” If both forms are used, print
both form numbers. This specific line number may have changed.
5.2.1
1
Color Screening
5.2.12
Other Changes Prohibited
It is not necessary to duplicate the color screening used on the official form. A substitute Form
1040 or 1040-SR may be printed in black and white only with no color screening.
No other changes to the Form 1040 or 1040-SR graphics are permitted without prior approval
except for the removal of instructions and references to instructions.
Part 6
Format and Content of Substitute Returns
Section 6.1 – Acceptable Formats for Substitute Forms and Schedules
6.1.1
Exhibits and Use of
Acceptable Formats
Exhibit A is an acceptable format for Form 1040-ES.
• If your computer-generated Form 1040-ES appears exactly like Exhibit
A, no prior authoriza-
tion is needed.
• You may computer-generate forms not shown here, but you must
design them by following the
manner and style discussed in Part 3.
• Take care to observe the other requirements and conditions in this
revenue procedure. The IRS
encourages the submission of all proposed forms covered by this revenue procedure.

December 28, 2020 1834 Bulletin No. 2020–53
6.1.2
Instructions
The format of each substitute form or schedule must follow the format of the official form or
schedule as to item captions, line references, line numbers, sequence, form arrangement and for-
mat, etc. Basically, try to make the form look like the official one, with readability and consistency
being primary factors. You may use periods and/or other similar special characters to separate the
various parts and sections of the form. Do not use alpha or numeric characters for these purposes.
All line numbers and items must be printed even though an amount is not entered on the line.
6.1.3
Line Numbers
When a line on an official form is designated by a number or a letter, that designation (reference
code) must be used on a substitute form. The reference code must be printed to the left of the text
of each line and immediately preceding the data entry field, even if no reference code precedes
the data entry field on the official form. If an entry field contains multiple lines and shows the line
references once on the left and right side of the form, use the same number of line references on
the substitute form.
In addition, the reference code that is immediately before the data field must either be followed
by a period or enclosed in parentheses. There must also be at least two blank spaces between the
period or the right parenthesis and the first digit of the data field. (See Section 6.1.4.)
6.1.4
Decimal Points
A decimal point (a period) should be used for each money amount regardless of whether the
amount is reported in dollars and cents or in whole dollars, or whether or not the vertical line that
separates the dollars from the cents is present. The decimal points must be vertically aligned when
possible.
Example:
5 State and local taxes
a State and local income taxes.....................5a.000.00
b State and local real estate taxes................5b.
c State and local personal property taxes....5c.000.00
or
a State and local income taxes.....................(5a)000.00
b State and local real estate taxes................(5b)
c State and local personal property taxes....(5c)000.00
6.1.5
Multi-Page Forms
When submitting a multi-page form, send all its pages in the same package. If you will not be
producing certain pages, please note that in your cover letter.
Section 6.2 – Additional Instructions for All Forms
6.2.1
Use of Your Own Internal
Control Numbers and
Identifying Symbols
You may show the computer-prepared internal control numbers and identifying symbols on the
substitute if using such numbers or symbols is acceptable to the taxpayer and the taxpayer’s rep-
resentative. Such information must not be printed in the top
1
/2-inch clear area of any form or
schedule requiring a signature.
6.2.2
Required Software ID
Number (Source Code)
on Computer- Prepared
Substitutes
Except for the actual tax return form (Forms 1040, 1040-SR, 1120, 940, 941, etc.), you may print
in the left vertical and bottom left margins. The bottom left margin you may use extends 3
1
/2 inch-
es from the left edge of the form. You may print internal control numbers in place of the removed
IRS catalog number.
In the February 2009 Government Accountability Office (GAO) report, “Many Taxpayers Rely on
Tax Software and IRS Needs to Assess Associated Risks” (GAO-09-297), the GAO recommend-

Bulletin No. 2020–53 1835 December 28, 2020
ed that the IRS require a software identification number on all individual returns to specifically
identify the software package used to prepare each tax return. The IRS already has this capability
for all e-filed returns. In addition, many tax preparation software firms already print an IRS-issued
3-letter Source Code on paper returns that are generated by their individual tax software. This
Source Code was assigned when the firms were seeking substitute forms approval under this
current publication.
In order to respond properly to this GAO recommendation, the IRS will require all tax preparation
software firms to include the 3-letter Source Code on all paper tax returns created by their individ-
ual tax preparation software. The many firms that currently have and display their Source Code on
paper returns generated from their software should continue to do so, and no change is necessary.
We have reviewed all software companies that passed Assurance Testing System (ATS) testing
last filing season and have determined that some firms do not currently have a Source Code. To
save you the burden of contacting us and for your convenience, we have assigned Source Codes
to those firms.
You should program your Source Code to be placed in the bottom left-hand corner of page one of
each paper form that will be generated by your individual tax return package. You do not need to
apply for a new Source Code annually.
If you already use a 3-letter Source Code and we have issued you one in error, you are unsure if
you were ever issued one, or have other questions or concerns, you may contact Tax Forms and
Publications Special Services Section at substituteforms@irs.gov.
6.2.3
Descriptions for Captions,
Lines, etc.
6.2.4
Determining Final Totals
Descriptions for captions, lines, etc., appearing on the substitute forms may be limited to one print
line by using abbreviations and contractions, and by omitting articles, prepositions, etc. However,
sufficient keywords must be retained to permit ready identification of the caption, line, or item.
Explanatory detail and/or intermediate calculations for determining final line totals may be in-
cluded on the substitute. We prefer that such calculations be submitted in the form of a supporting
statement. If intermediate calculations are included on the substitute, the line on which they appear
may not be numbered or lettered. Intermediate calculations may not be printed in the right column.
This column is reserved only for official numbered and lettered lines that correspond to the ones
on the official form. Generally, you may choose the format for intermediate calculations or subto-
tals on supporting statements to be submitted.
6.2.5
Instructional Text on the
Official Form
Text on the official form, which is solely instructional (for example, “See instructions,” etc.), may
generally be omitted from the substitute form.
6.2.6
Intermingling Is Prohibited
Showing more than one form or schedule on the same printout page is prohibited. Both sides of
the paper may be used for multi-page forms, but it is unacceptable to intermingle forms.
For instance, Schedule E can be printed on both sides of the paper because the official form is
multi-page, with page 2 continued on the back. However, do not print Schedule E on the front
page and Schedule SE on the back page, or Schedule A on the front and Form 8615 on the back,
etc. Both pages of a substitute form must match the official form. The back page may be left blank
if the back page of the official form contains only the instructions.
6.2.7
Identifying Substitutes
Identify all computer-prepared substitutes clearly. Print the form designation
1
/2 inch from the top
margin and 1
1
/2 inches from the left margin. Print the title centered on the first line of print. Print
the tax year and, where applicable, the sequence number on the same line
1
/2 inch to 1 inch from
the right margin.

December 28, 2020 1836 Bulletin No. 2020–53
6.2.8
Negative Amounts
Include the taxpayer’s name and SSN on all forms and attachments. Also, print the OMB number
as reflected on the official form.
Negative (or loss) amount entries should be enclosed in brackets or parentheses or include a minus
sign. This assists in accurate computation and input of form data. The IRS preprints parentheses
in negative data fields on many official forms. These parentheses should be retained or inserted on
printouts of affected substitute forms.
Part 7
Miscellaneous Forms and Programs
Section 7.1 – Specifications for Substitute Schedules K-1
7.1.1
Requirements for Schedules
K-1 That Accompany
Forms 1041,
1065, and 1120-S
Because of significant changes to improve processing, prior approval is now required for substitute
Schedules K-1 that accompany Form 1041 (for estates and trusts), Form 1065 (for partnerships),
or Form 1120-S (for S corporations). Substitute Schedules K-1 should be as close as possible to
exact replicas of copies of the official IRS schedules and follow the same process for submitting
other substitute forms and schedules. Before releasing their substitute forms, software vendors are
responsible for making any subsequent changes that have been made to the final official IRS forms
after the draft forms have been posted.
Submit substitute Schedule K-1 forms, in PDF format, to scrips@irs.gov for scannability accep-
tance. Schedule K-1 forms that require testing do not need to be mailed to the Program. You must
include information on the substitute that can be tested. This information should be dummy infor-
mation. Use an “X” for alpha characters and “0” for numbers. The IRS will review and provide
feedback of any changes needed so that your forms can be recognized correctly.
Include the 6-digit form ID code in the upper right of Schedules K-1 of Forms 1041, 1065, and
1120-S. Please allow at least
1
/4 inch of white space around the 6-digit code.
• 661117 for Form 1041.
• 651119 for Form 1065.
• 671120 for Form 1120-S.
Schedules K-1 that accompany Forms 1041, 1065, or 1120-S must meet all specifications. The
specifications include, but are not limited to, the following requirements.
• You will no longer be able to produce Schedules K-1 that contain only
those lines or boxes that
taxpayers are required to use. All lines must be included.
• The words “*See attached statement for additional information.” must
be preprinted in the low-
er right-hand side on Schedules K-1 of Forms 1041, 1065, and 1120-S.
• All Schedules K-1 that are filed with the IRS should be printed on
standard 8.5” x 11” paper (the
international standard (A4) of 8.27” x 11.69” may be substituted).
• 10-point Helvetica Light Standard is preferred for all entries that are
typed or made using a
computer.

Bulletin No. 2020–53 1837 December 28, 2020
• Submissions should include IRS source code or NACTP vendor ID
code printed on the lower
left corner of the form or in place of the IRS catalog number.
• Each recipient’s information must be on a separate sheet of paper.
Therefore, you must separate
all continuously printed substitutes, by recipient, before filing with the IRS.
• No carbon copies or pressure-sensitive copies will be accepted.
• The Schedule K-1 must contain the name, address, and SSN or EIN of
both the entity (estate,
trust, partnership, or S corporation) and the recipient (beneficiary, partner, or shareholder).
• The Schedule K-1 must contain the tax year, the OMB number, the
schedule number (K-1), the
related form number (1041, 1065, or 1120-S), and the official schedule name in substantially
the same position and format as shown on the official IRS schedule.
• The Schedule K-1 must contain all the line items as shown on the
official form, except for the
instructions, if any are printed on the back of the official Schedule K-1.
• The line items or boxes must be in the same order and arrangement as
those on the official form.
• The amount of each recipient’s share of each item must be shown. A partial percent should be
reflected as a decimal (for example, 501/2% should be 50.5%). Furnishing a total amount of
each item and a percentage (or decimal equivalent) to be applied to such total amount by the
recipient does not satisfy the law and the specifications of this revenue procedure.
• State or local tax-related information may not be included on the
Schedules K-1 filed with the
IRS.
• The entity may have to pay a penalty if substitute Schedules K-1 are
filed that do not conform
to specifications.
• Additionally, the IRS may consider the Schedules K-1 that do not
conform to specifications as
not being able to be processed and may return Form 1041, 1065, or 1120-S to the filer to be
filed correctly.
Schedules K-1 that are 2-D bar-coded will continue to require prior approval from the IRS (see
Sections 7.1.3 through 7.1.5).
7.1.2
Special Requirements
for Recipient Copies of
Schedules K-1
Standardization for reporting information is required for recipient copies of substitute Schedules
K-1 of Forms 1041, 1065, and 1120-S. Uniform visual standards are provided to increase com-
pliance by allowing recipients and practitioners to more easily recognize a substitute Schedule
K-1. The entity must furnish to each recipient a copy of Schedule K-1 that meets the following
requirements.
• Include the 6-digit form ID code in the upper right of Schedules K-1 of
Forms 1041, 1065, and
1120-S. Please allow white space around the 6-digit code.
– 661117 for Form 1041.
– 651119 for Form 1065.
– 671120 for Form 1120-S.
• You will no longer be able to produce Schedules K-1 that contain only
those lines or boxes that
taxpayers are required to use. All lines must be included.

December 28, 2020 1838 Bulletin No. 2020–53
• The words “*See attached statement for additional information.” must
be preprinted in the low-
er right-hand side on Schedules K-1 of Forms 1041, 1065, and 1120-S.
• The Schedule K-1 must contain the name, address, and SSN or EIN of
both the entity and re-
cipient.
• The Schedule K-1 must contain the tax year, the OMB number, the
schedule number (K-1), the
related form number (1041, 1065, or 1120-S), and the official schedule name in substantially
the same position and format as shown on the official IRS schedule.
• All applicable amounts and information required to be reported must be
titled and numbered
in the same manner as shown on the official IRS schedule. The line items or boxes must be in
the same order and arrangement and must be numbered like those on the official IRS schedule.
• The Schedule K-1 must contain all items required for use by the
recipient. The instructions for
the schedule must identify the line or box number and code, if any, for each item as shown in
the official IRS schedule.
• The amount of each recipient’s share of each item must be shown. A partial percent should be
reflected as a decimal (for example, 501/2% should be 50.5%). Furnishing a total amount of
each line item and a percentage (or decimal equivalent) to be applied to such total amount by
the recipient does not satisfy the law and the specifications of this revenue procedure.
• Instructions to the recipient that are substantially similar to those on or
accompanying the offi-
cial IRS schedule must be provided to aid in the proper reporting of the items on the recipient’s
income tax return. Where items are not reported to a recipient because they do not apply, the
related instructions may be omitted.
• The quality of the ink or other material used to generate recipients’
schedules must produce
clearly legible documents. In general, black chemical transfer inks are preferred.
• In order to assure uniformity of substitute Schedules K-1, the paper
size should be standard 8.5”
x 11” (the international standard (A4) of 8.27” x 11.69” may be substituted).
• The paper weight, paper color, font type, font size, font color, and page
layout must be such that
the average recipient can easily decipher the information on each page. The preferred font is
“Helvetica” and a minimal of 10-point font.
• State or local tax-related information may be included on recipient
copies of substitute Sched-
ules K-1. All non-tax-related information should be separated from the tax information on the
substitute schedule to avoid confusion for the recipient.
• The legend “Important Tax Return Document Enclosed” must appear
in a bold and conspicuous
manner on the outside of the envelope that contains the substitute recipient copy of Schedule
K-1.
• The entity may have to pay a penalty if a substitute Schedule K-1
furnished to any recipient does
not conform to the specifications of this revenue procedure and results in impeding processing.
7.1.3
Requirements for Schedules
K-1 With Two- Dimensional
(2- D) Bar Codes
Electronic filing is now and will continue to be the preferred method of filing; however, 2-D bar
code is the best alternative method for paper processing.
In an effort to improve efficiency and increase data accuracy, the IRS partnered with the tax soft-
ware development community on a two-dimensional bar code project in 2003. Certain tax soft-
ware packages have been modified to generate 2-D bar codes on Schedules K-1. As a result, when
Schedules K-1 are printed using these programs, a bar code will print on the page.

Bulletin No. 2020–53 1839 December 28, 2020
Rather than manually transcribe information from the Schedule K-1, the IRS will scan the bar
code and electronically upload the information from the Schedule K-1. The results will be more
efficient operation within the IRS and fewer transcription errors for your clients.
Note. If software vendors do not want to produce bar-coded Schedules K-1, they may produce the
official IRS Schedules K-1 but cannot use the expedited process for approving bar-coded Sched-
ules K-1 and their parent returns as outlined in Section 7.1.6.
In addition to the requirements in Sections 7.1.1 and 7.1.2, the bar-coded Schedules K-1 must
meet the following specifications.
• The bar code should print in the space labeled “For IRS Use Only” on each Schedule K-1. The
entire bar code must print within the “For IRS Use Only” box surrounded by a white space of
at least 1/4 inch.
• Bar codes must print in PDF 417 format.
• The bar codes must always be in the specified format with every field represented by at least a
field delimiter (carriage return). Leaving out a field in a bar code will cause every subsequent
field to be misread.
• Be sure to include the 6-digit form ID code in the upper right of
Schedules K-1 of Forms 1041,
1065, and 1120-S. Please allow white space around the 6-digit code.
– 661117 for Form 1041.
– 651119 for Form 1065.
– 671120 for Form 1120-S.
7.1.4
2-D Bar Code Specifications
for Schedules K-1
Follow these general specifications for preparing all 2-D bar-coded Schedules K-1.
• Numeric fields.
–
Do not include leading zeros (except Taxpayer Identification
Numbers, ZIP codes, and per-
centages).
–
If negative value, the minus sign “–” must be present immediately
to the left of the number
and part of the 12 position field.
–
Do not use non-numeric characters except that the literal “STMT”
can be put in money fields.
–
All money fields should be rounded to the nearest whole dollar
amount—if a money amount
ends in 00 to 49 cents, drop the cents; if it ends in 50 to 99 cents, truncate the cents and in-
crement the dollar amount by one. Use the same rounding technique for the bar-coded and
the printed Schedules K-1.
–
All numeric-only fields are right justified (except Taxpayer
Identification Numbers and ZIP
codes).
• All field lengths are expressed as maximum lengths. If the value in the
field has fewer positions
or the software program does not support that many positions, put in the bar code only those
positions actually used.
• Alpha fields.
–
Do not include leading blanks (left justified).

December 28, 2020 1840 Bulletin No. 2020–53
–
Do not include trailing blanks.
–
Use uppercase alpha characters only.
• Variable fields.
–
Do not include leading blanks (left justified).
–
Do not include trailing blanks.
–
Use uppercase alpha characters, numerics, and special characters
as defined in each field.
• Delimit each field with a carriage return.
• Express percentages as 6-digit numbers without the percent sign. Left
justify with leading ze-
ro(s) (for percentages less than 100%) and no decimal point (decimal point is assumed be-
tween 3rd and 4th positions). Examples: 25.32% expressed as “025320”; 105% expressed as
“105000”; 8.275% expressed as “008275”; 10.24674% expressed as “010247.”
• It is vital that the print routine reinitialize the bar code prior to printing
each succeeding Sched-
ule K-1. Failure to do this will result in each Schedule K-1 for a parent return having the same
bar code as the document before it.
7.1.5
Approval Process for Bar-
Coded Schedules K-1
Prior to releasing commercially available tax software that creates bar-coded Schedules K-1, the
printed schedule and the bar code must both be tested. If your company is creating bar-coded
Schedules K-1, you must receive certification for both the printed Schedule K-1, as well as the bar
code before offering your product for sale. Bar-code testing must be done using the final official
IRS Schedule K-1. Bar-code approval requests must be resubmitted for any subsequent changes
to the official IRS form that would affect the bar code. Below are instructions and a sequence of
events that will comprise the testing process.
• The IRS has released the final Schedule K-1 bar-code specifications by publishing them on the
IRS.gov website (see IRS.gov/E-file-Providers/ K-1-Bar-Code-Certification-Process).
• The IRS will publish a set of test documents that will be used to test the ability of tax prepara-
tion software to create bar codes in the correct format.
• Software developers will submit two identical copies of the test documents—one to the IRS and
one to a contracted testing vendor.
• The IRS will use one set to ensure the printed schedules comply with standard substitute forms
specifications.
• If the printed forms fail to meet the substitute form criteria, the IRS will inform the software
developer of the reason for noncompliance.
• The software developer must resubmit the Schedule(s) K-1 until they pass the substitute forms
criteria.
• The testing vendor will review the bar codes to ensure they meet the published bar-code spec-
ifications.
• If the bar code(s) does not meet published specifications, the testing vendor will contact the
software developer directly informing them of the reason for noncompliance.
• Software developers must submit new bar-coded schedules until they pass the bar-code test.

Bulletin No. 2020–53 1841 December 28, 2020
• When the bar code passes, the testing vendor will inform the IRS that the developer has passed
the bar-code test and the IRS will issue an overall approval for both the substitute form and the
bar code.
• After receiving this consolidated response, the software vendor is free to release software for
tax preparation as long as any subsequent revisions to the schedules do not change the fields.
• Find the mailing address for the testing vendor below. Separate and simultaneous mailings to
the IRS and the vendor will reduce testing time.
7.1.6
Procedures for Reducing
Testing Time
In order to help provide incentives to the software development community to participate in the
Schedule K-1 2-D project, the IRS has committed to expediting the testing of bar-coded Schedules
K-1 and their associated parent returns. To receive this expedited service, follow the instructions
below.
• Mail the parent returns (Forms 1065, 1120-S, 1041) and associated
bar-coded Schedule(s) K-1
to the appropriate address below in a separate package from all other approval requests.
Internal Revenue Service
Attn: Bar-Coded K-1
SE:W:CAR:MP:T:M:S, IR-6526
1111 Constitution Ave. NW
Washington, DC 20224
• Mail one copy of the parent form(s) and Schedule(s) K-1 to the IRS
and another copy to the
testing vendor at the address below.
Leidos-IRS Paper and Remittance
Processing Support (PRPS II)
Attn: Dana Hawkins
4701 Forbes Blvd.
Lanham, MD 20706
• Include multiple email and phone contact points in the packages.
• While the IRS can expedite bar-coded Schedules K-1 and their
associated parent returns, it
cannot expedite the approval of nonassociated tax returns.
• Vendors are encouraged to visit NACTP.org for compliance guidelines in regards to mil size and
error-correction level.
• Submissions should include IRS source code or NACTP vendor ID
code printed on the lower
left corner of the form or in place of the IRS catalog number.
• If a change is made to the bar code after approval, be sure to increment
the version number.
Section 7.2 – Guidelines for Substitute Forms 8655
7.2.1
Incr
eased Standardization
for Forms 8655
Increased standardization for reporting information on substitute Forms 8655 is now required to
aid in processing and for compliance purposes. Please follow the guidelines in Section 7.2.2
.

December 28, 2020 1842 Bulletin No. 2020–53
7.2.2
Requirements for
Substitute Forms 8655
Please follow these specific requirements when producing substitute Forms 8655.
• The first line of the title must be “Reporting Agent Authorization.”
• If you want to include a reference to “State Limited Power of
Attorney,” it can be in parentheses
under the title. “State” must be the first word within the parentheses.
• You must include “Form 8655” on the form.
• While the line numbers do not have to match the official form, the
sequence of the information
must be in the same order.
• The size of any variable data must be printed in a font no smaller than
10-point.
• For adequate disclosure checks, the following must be included for
each taxpayer.
–
Name.
–
EIN.
–
Address.
• At this time, Form 944 will not be required if Form 941 is checked.
Only those forms that the
reporting agent company supports need to be listed.
• The jurat (perjury statement) must be identical with the exception of
references to line numbers.
• A contact name and number for the reporting agent is not required.
• Any state information included should be contained in a separate
section of the substitute form.
Preferably, this information will be in the same area as line 19 of the official form.
• All substitute Forms 8655 must be approved by the Program as
outlined in the Form 8655 spec-
ifications in this current publication.
• If you have not already been assigned a 3-letter Source Code, you will
be given one when your
substitute form is submitted for approval. This Source Code should be included in the lower
left corner of the form.
• The 20-business-day assumed approval policy does not apply to Form
8655 approvals.
7.2.3
Exception for Form 8655
Because of how Form 8655 is processed and distributed to recipients, vendors are allowed to affix
their logo onto the substitute version of the form. This exception is for Form 8655 only.
Part 8
Additional Information
Section 8.1 – Forms for Electronically Filed Returns

Bulletin No. 2020–53 1843 December 28, 2020
8.1.1
Electronic Filing Program
Electronic filing is a method by which authorized providers transmit tax return information to an
IRS Service Center in the format of the official IRS forms. The IRS accepts both refund and bal-
ance due forms that are filed electronically.
8.1.2
Applying To Participate in
IRS e-file
8.1.3
Obtaining the Taxpayer
Signature/ Submission of
Required Paper Documents
Anyone wishing to participate in IRS e-file of tax returns must submit an e-file application. The
application can be completed and submitted electronically on the IRS website at IRS.gov after
first registering for e-services on the website.
Taxpayers choosing to electronically prepare and file their return will be required to use the
Self-Select PIN method as their signature.
Electronic Return Originators (EROs) can e-file individual income tax returns only if the returns
are signed electronically using either the Self-Select or Practitioner PIN method.
Taxpayers must use Form 8453, U.S. Individual Income Tax Transmittal for an IRS e-file Return,
to send supporting documents that are required to be submitted to the IRS.
For specific information about electronic filing, refer to Pub. 1345, Handbook for Authorized IRS
e-file Providers of Individual Income Tax Returns.
8.1.4
Guidelines for Preparing
Substitute Forms in the
Electronic Filing Program
A participant in the electronic filing program who wants to develop a substitute form should fol-
low the guidelines throughout this publication and send a sample form for approval to the Program
at substituteforms@irs.gov. If you do not prepare substitute Form 8453 using a font in which all
IRS wording fits on a single page, the form will not be accepted.
Note. Use of unapproved forms could result in suspension of the participant from the electronic
filing program.
Section 8.2 – Effect on Other Documents
8.2.1
Effect on Other
Documents
This revenue procedure supersedes Revenue Procedure 2019-35, 2019-41 I.R.B. 871.
Section 8.3 – Exhibits
Exhibit A — Form 1040-ES Voucher 2020
Exhibit B — Substitute Form Checksheet

December 28, 2020 1844 Bulletin No. 2020–53
38
Software Developers Voucher
ExhibitAForm 1040-ESVoucher
Make your check or money order payable to “United States Treasury.”
Enter your SSN and “2020 Form 1040-ES” on your payment.
If your name, address, or SSN is incorrect, see instructions.ForPrivacyActandPaperworkReductionActNotice,seeinstructions.
Payonlineat IRS.gov/epay.Simple.Fast.Secure.
John Q. Doe
000 Someplace Somewhere Blvd.
City, St
00000

PO Box 00000
City, St 00000 - 0000

000000000 XX DOE 00 0 202012 000
Form 1040-ES (OCR)
Department of the Treasury
Internal Revenue Service
2020
OMB No. 1545-0074
Estimated Tax
Voucher 1
Payment
Calendar year—
Due April 15, 2020
Amount of estimated tax you are
paying by check or money order.
Dollars
0,000
Cents

Bulletin No. 2020–53 1845 December 28, 2020
39
IRS Checksheet
ExhibitB
Substitute FormsChecksheet
Checksheetof IRSSubstituteForms20:
Submitted on
Company: ............................
Contact:.............................
Phone: .............................
Fax: ..............................
SourceCode: ...........................
Form
Number
ApprovedApproved
With
Corrections
Comments
AuthorizedName:
Title:
Reviewer'sName:
Telephone:
Date:

Bulletin No. 2020–53 i December 28, 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.

December 28, 2020 ii Bulletin No. 2020–53
Numerical Finding List
1
Bulletin 2020–53
Announcements:
2020-8, 2020-32 I.R.B. 244
2020-9, 2020-32 I.R.B. 244
2020-10, 2020-33 I.R.B. 385
2020-11, 2020-33 I.R.B. 385
2020-13, 2020-35 I.R.B. 492
2020-14, 2020-36 I.R.B. 549
2020-15, 2020-38 I.R.B. 577
2020-16, 2020-38 I.R.B. 578
2020-17, 2020-40 I.R.B. 794
2020-12, 2020-41 I.R.B. 893
2020-40, 2020-45 I.R.B. 999
2020-47, 2020-19 I.R.B. 1070
Notices:
2020-43, 2020-27 I.R.B. 1
2020-45, 2020-27 I.R.B. 3
2020-46, 2020-27 I.R.B. 7
2020-47, 2020-27 I.R.B. 7
2020-49, 2020-27 I.R.B. 8
2020-50, 2020-28 I.R.B. 35
2020-48, 2020-29 I.R.B. 72
2020-51, 2020-29 I.R.B. 73
2020-52, 2020-29 I.R.B. 79
2020-53, 2020-30 I.R.B. 151
2020-54, 2020-31 I.R.B. 226
2020-56, 2020-32 I.R.B. 239
2020-57, 2020-32 I.R.B. 240
2020-58, 2020-34 I.R.B. 419
2020-55, 2020-35 I.R.B. 467
2020-61, 2020-35 I.R.B. 468
2020-62, 2020-35 I.R.B. 476
2020-63, 2020-35 I.R.B. 491
2020-60, 2020-36 I.R.B. 514
2020-64, 2020-36 I.R.B. 519
2020-65, 2020-38 I.R.B. 567
2020-68, 2020-38 I.R.B. 567
2020-69, 2020-39 I.R.B. 604
2020-59, 2020-40 I.R.B. 782
2020-66, 2020-40 I.R.B. 785
2020-71, 2020-40 I.R.B. 786
2020-72, 2020-40 I.R.B. 789
2020-73, 2020-41 I.R.B. 886
2020-74, 2020-41 I.R.B. 887
2020-70, 2020-43 I.R.B. 913
2020-77, 2020-45 I.R.B. 988
2020-79, 2020-46 I.R.B. 1014
2020-76, 2020-47 I.R.B. 1058
2020-80, 2020-47 I.R.B. 1060
2020-75, 2020-49 I.R.B. 1453
2020-82, 2020-49 I.R.B. 1458
2020-82, 2020-49 I.R.B. 1458
2020-83, 2020-50 I.R.B. 1497
Notices:—Continued
2020-84, 2020-51 I.R.B. 1645
2020-85, 2020-51 I.R.B. 1645
2020-78, 2020-53 I.R.B. 1785
2020-86, 2020-53 I.R.B. 1786
2020-87, 2020-53 I.R.B. 1792
2020-88, 2020-53 I.R.B. 1795
Proposed Regulations:
REG-119307-19, 2020-28 I.R.B. 44
REG-112339-19, 2020-30 I.R.B. 155
REG-117589-18, 2020-30 I.R.B. 184
REG-125716-18, 2020-30 I.R.B. 197
REG-123027-19, 2020-31 I.R.B. 229
REG-130081-19, 2020-32 I.R.B. 246
REG-127732-19, 2020-33 I.R.B. 385
REG-111879-20, 2020-34 I.R.B. 421
REG-112042-19, 2020-34 I.R.B. 422
REG-132766-18, 2020-34 I.R.B. 436
REG-132434-17, 2020-35 I.R.B. 508
REG-116475-19, 2020-37 I.R.B. 553
REG-107911-18, 2020-40 I.R.B. 795
REG-110059-20, 2020-42 I.R.B. 904
REG-119890-18, 2020-47 I.R.B. 1063
REG-122462-20, 2020-48 I.R.B. 1137
REG-101657-20, 2020-49 I.R.B. 1466
REG-123652-18, 2020-51 I.R.B. 1652
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
2020-36, 2020-32 I.R.B. 243
2020-37, 2020-33 I.R.B. 381
2020-38, 2020-36 I.R.B. 522
2020-39, 2020-36 I.R.B. 546
2020-40, 2020-38 I.R.B. 575
2020-41, 2020-40 I.R.B. 793
2020-42, 2020-41 I.R.B. 891
2020-43, 2020-45 I.R.B. 991
2020-44, 2020-45 I.R.B. 991
2020-46, 2020-45 I.R.B. 995
2020-45, 2020-46 I.R.B. 1016
2020-47, 2020-48 I.R.B. 1121
2020-49, 2020-48 I.R.B. 1122
2020-50, 2020-48 I.R.B. 1122
2020-48, 2020-49 I.R.B. 1459
2020-51, 2020-50 I.R.B. 1599
2020-54, 2020-53 I.R.B. 1806
2020-55, 2020-53 I.R.B. 1811
Revenue Rulings:
2020-14, 2020-28 I.R.B. 33
2020-15, 2020-32 I.R.B. 233
2020-16, 2020-37 I.R.B. 550
2020-17, 2020-37 I.R.B. 552
Revenue Rulings:—Continued
2020-18, 2020-39 I.R.B. 584
2020-19, 2020-40 I.R.B. 611
2020-20, 2020-41 I.R.B. 880
2020-21, 2020-41 I.R.B. 882
2020-22, 2020-45 I.R.B. 963
2020-24, 2020-45 I.R.B. 965
2020-23, 2020-47 I.R.B. 1028
2020-25, 2020-48 I.R.B. 1109
2020-26, 2020-50 I.R.B. 1550
2020-27, 2020-50 I.R.B. 1552
2020-28, 2020-52 I.R.B. 1669
Treasury Decisions:
9899, 2020-29 I.R.B. 62
9900, 2020-30 I.R.B. 143
9903, 2020-32 I.R.B. 235
9901, 2020-33 I.R.B. 266
9902, 2020-33 I.R.B. 349
9904, 2020-34 I.R.B. 413
9907, 2020-38 I.R.B. 559
9906, 2020-39 I.R.B. 579
9905, 2020-40 I.R.B. 614
9915, 2020-41 I.R.B. 882
9908, 2020-42 I.R.B. 894
9920, 2020-43 I.R.B. 909
9910, 2020-44 I.R.B. 915
9924, 2020-44 I.R.B. 943
9911, 2020-45 I.R.B. 966
9913, 2020-45 I.R.B. 975
9927, 2020-47 I.R.B. 1031
9918, 2020-45 I.R.B. 979
9914, 2020-46 I.R.B. 1000
9919, 2020-48 I.R.B. 1073
9931, 2020-48 I.R.B. 1087
9922, 2020-49 I.R.B. 1139
9929, 2020-49 I.R.B. 1220
9930, 2020-49 I.R.B. 1400
9923, 2020-50 I.R.B. 1554
9926, 2020-51 I.R.B. 1602
9912, 2020-52 I.R.B. 1688
9933, 2020-52 I.R.B. 1692
9934, 2020-52 I.R.B. 1729
9935, 2020-52 I.R.B. 1746
9921, 2020-53 I.R.B. 1767
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2019–27 through 2019–52 is in Internal Revenue Bulletin
2019–52, dated December 27, 2019.

Bulletin No. 2020–53 iii December 28, 2020
Finding List of Current Actions on
Previously Published Items
1
Bulletin 2020–53
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2019–27 through 2019–52 is in Internal Revenue Bulletin
2019–52, dated December 27, 2019.

Internal Revenue Service
Washington, DC 20224
Official Business
Penalty for Private Use, $300
INTERNAL REVENUE BULLETIN
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