Internal Revenue Bulletin 2020-45 (PDF rendition): IRS Announcements

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Bulletin No. 2020–45
November 2, 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.
EMPLOYEE PLANS
Rev. Proc. 2020-43, page 991.
This revenue procedure provides the inflation-adjusted max-
imum dollar amount that may be made newly available for
excepted benefit health reimbursement arrangements or
other account-based group health plans for plan years begin-
ning after December 31, 2020, and before January 1, 2022.
Due to indexing methodology requiring rounding down to the
nearest $50 increment, this amount remains $1,800 for the
2021 plan year.
Rev. Proc. 2020-46, page 995.
This revenue procedure modifies and updates Rev. Proc.
2016-47, 2016-37 I.R.B. 346, which provides a list of per-
missible reasons for a taxpayer to self-certify eligibility for a
waiver of the 60-day rollover requirement under certain eligi-
ble retirement plans. This revenue procedure modifies that
list by adding a new reason: a distribution was made to a
state unclaimed property fund.
EMPLOYMENT PLANS
Notice 2020-77, page 988.
This notice sets forth updates on the corporate bond month-
ly yield curve, the corresponding spot segment rates for
October 2020 used under § 417(e)(3)(D), the 24-month av-
erage segment rates applicable for October 2020, and the
30-year Treasury rates, as reflected by the application of §
430(h)(2)(C)(iv).
INCOME TAX
Announcement 2020-40, page 999.
The United States provided written notification, dated August
18, 2020, to the Government of the Hong Kong Special Ad-
ministrative Region of its termination of a reciprocal agree-
ment to exempt from income tax certain income from the
international operation of ships. The termination of the agree-
ment takes effect on January 1, 2021, and will have effect
for taxable years beginning on or after January 1, 2021.
Rev. Proc. 2020-44, page 991.
To facilitate the market’s transition away from the London
Interbank Offered Rate and other interbank offered rates,
this revenue procedure mitigates certain potential tax con-
sequences of adopting fallback language recommended
by the Alternative Reference Rates Committee (ARRC) and
the International Swaps and Derivatives Association (ISDA).
The revenue procedure generally provides that modifying
certain contracts to incorporate the ARRC’s and ISDA’s rec-
ommended fallback language will not result in a realization
event. In addition, the revenue procedure generally provides
that such modifications will not result in legging out of an
integrated transaction or in the disposition or termination of
either leg of a hedging transaction.
Rev. Rul. 2020-22, page 963.
Federal rates; adjusted federal rates; adjusted federal long-
term rate, and the long-term tax exempt rate. For purposes
of sections 382, 1274, 1288, 7872 and other sections of
the Code, tables set forth the rates for November 2020.
Finding Lists begin on page ii.

Rev. Rul. 2020-24, page 965.
This revenue ruling clarifies the federal income tax with-
holding and reporting obligations that apply for the year a
payment is made from a qualified plan to a state unclaimed
property fund.
T.D. 9911, page 966.
The final regulations provide guidance on determining life
insurance reserves and changing the method of computing
certain insurance company reserves. The final regulations
also authorize changes to insurance company reporting re-
quirements and contain numerous conforming changes to
other regulations. The final regulations implement legisla-
tive changes made by sections 13513 and 13517 of the
Tax Cuts and Jobs Act.
The main regulation citations are: 26 CFR 1.338-11:
Effect of section 338 election on insurance company tar-
gets; 26 CFR 1.807-1: Computation of life insurance re-
serves; 26 CFR 1.807-3: Reporting of reserves; 26 CFR
1.807-4: Adjustment for change in computing reserves; 26
CFR 1.816-1: Life insurance reserves; 26 CFR 1.817A-1:
Certain modified guaranteed contracts; 26 CFR 1.6012-2:
Corporations required to make returns of income; 26 CFR
301.9100-6T: Time and manner of making certain elec-
tions under the Deficit Reduction Act of 1984.
T.D. 9913, page 975.
These final regulations clarify the definition of a “qualifying
relative” for purposes of various provisions of the Internal
Revenue Code for taxable years 2018 through 2025.
T.D. 9918, page 979.
This document contains final regulations clarifying that the
following deductions allowed to an estate or non-grantor
trust are not miscellaneous itemized deductions subject to
the suspension in section 67(g): costs paid or incurred in
connection with the administration of an estate or non-grant-
or trust that would not have been incurred if the property
were not held in the estate or trust, the personal exemption
of an estate or non-grantor trust, the distribution deduction
for trusts distributing current income, and the distribution
deduction for estates and trusts accumulating income. The
final regulations also provide guidance on determining the
character, amount, and allocation of deductions in excess
of gross income succeeded to by a beneficiary on the ter-
mination of an estate or non-grantor trust.

The IRS Mission
Provide America’s taxpayers top-quality service by helping
them understand and meet their tax responsibilities and en-
force the law with integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing of-
ficial rulings and procedures of the Internal Revenue Service
and for publishing Treasury Decisions, Executive Orders, Tax
Conventions, legislation, court decisions, and other items of
general interest. It is published weekly.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless other-
wise indicated. Procedures relating solely to matters of inter-
nal management are not published; however, statements of
internal practices and procedures that affect the rights and
duties of taxpayers are published.
Revenue rulings represent the conclusions of the Service
on the application of the law to the pivotal facts stated in
the revenue ruling. In those based on positions taken in rul-
ings to taxpayers or technical advice to Service field offices,
identifying details and information of a confidential nature are
deleted to prevent unwarranted invasions of privacy and to
comply with statutory requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions
of the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B,
Legislation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative
Rulings. Bank Secrecy Act Administrative Rulings are issued
by the Department of the Treasury’s Office of the Assistant
Secretary (Enforcement).
Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbar-
ment and suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
November 2, 2020 Bulletin No. 2020–45

Part I
Section 1274. —
Determination of Issue
Price in the Case of Certain
Debt Instruments Issued for
Property
(Also §§ 42, 280G, 382, 467, 468, 482, 483, 1288,
7520, 7872.)
Rev. Rul. 2020-22
This revenue ruling provides various
prescribed rates for federal income tax
purposes for November 2020 (the cur-
rent month). Table 1 contains the short-
term, mid-term, and long-term applica-
ble federal rates (AFR) for the current
month for purposes of section 1274(d)
of the Internal Revenue Code. Table 2
contains the short-term, mid-term, and
long-term adjusted applicable federal
rates (adjusted AFR) for the current
month for purposes of section 1288(b).
Table 3 sets forth the adjusted feder-
al long-term rate and the long-term
tax-exempt rate described in section
382(f). Table 4 contains the appropri-
ate percentages for determining the
low-income housing credit described in
section 42(b)(1) for buildings placed in
service during the current month. How-
ever, under section 42(b)(2), the appli-
cable percentage for non-federally sub-
sidized new buildings placed in service
after July 30, 2008, shall not be less
than 9%. Finally, Table 5 contains the
federal rate for determining the present
value of an annuity, an interest for life
or for a term of years, or a remainder or
a reversionary interest for purposes of
section 7520.
REV. RUL. 2020-22 TABLE 1
Applicable Federal Rates (AFR) for November 2020
Period for Compounding
AnnualSemiannualQuarterlyMonthly
Short-term
AFR0.13%0.13%0.13%0.13%
110% AFR0.14%0.14%0.14%0.14%
120% AFR0.16%0.16%0.16%0.16%
130% AFR0.17%0.17%0.17%0.17%
Mid-term
AFR0.39%0.39%0.39%0.39%
110% AFR0.43%0.43%0.43%0.43%
120% AFR0.47%0.47%0.47%0.47%
130% AFR0.51%0.51%0.51%0.51%
150% AFR0.59%0.59%0.59%0.59%
175% AFR0.68%0.68%0.68%0.68%
Long-term
AFR1.17%1.17%1.17%1.17%
110% AFR1.29%1.29%1.29%1.29%
120% AFR1.40%1.40%1.40%1.40%
130% AFR1.53%1.52%1.52%1.52%
REV. RUL. 2020-22 TABLE 2
Adjusted AFR for November 2020
Period for Compounding
AnnualSemiannualQuarterlyMonthly
Short-term adjusted AFR0.10%0.10%0.10%0.10%
Mid-term adjusted AFR0.30%0.30%0.30%0.30%
Long-term adjusted AFR0.89%0.89%0.89%0.89%
Bulletin No. 2020–45 963 November 2, 2020

REV. RUL. 2020-22 TABLE 3
Rates Under Section 382 for November 2020
Adjusted federal long-term rate for the current month.89%
Long-term tax-exempt rate for ownership changes during the current month (the highest of
the adjusted federal long-term rates for the current month and the prior two months.)
.89%
REV. RUL. 2020-22 TABLE 4
Appropriate Percentages Under Section 42(b)(1) for November 2020
Note: Under section 42(b)(2), the applicable percentage for non-federally subsidized new buildings placed in service after July
30, 2008, shall not be less than 9%.
Appropriate percentage for the 70% present value low-income housing credit7.18%
Appropriate percentage for the 30% present value low-income housing credit 3.08%
REV. RUL. 2020-22 TABLE 5
Rate Under Section 7520 for November 2020
Applicable federal rate for determining the present value of an annuity, an interest for life or
a term of years, or a remainder or reversionary interest
.4%
Section 42.—Low-Income
Housing Credit
The applicable federal short-term, mid-term,
and long-term rates are set forth for the month of
November 2020. See Rev. Rul. 2020-22, page 963.
Section 280G.—Golden
Parachute Payments
The applicable federal short-term, mid-term,
and long-term rates are set forth for the month of
November 2020. See Rev. Rul. 2020-22, page 963.
Section 382.—Limitation
on Net Operating Loss
Carryforwards and
Certain Built-In Losses
Following Ownership
Change
The adjusted applicable federal long-term rate
is set forth for the month of November 2020. See
Rev. Rul. 2020-22, page 963.
Section 467.—Certain
Payments for the Use of
Property or Services
The applicable federal short-term, mid-term,
and long-term rates are set forth for the month of
November 2020. See Rev. Rul. 2020-22, page 963.
Section 468.—Special
Rules for Mining and Solid
Waste Reclamation and
Closing Costs
The applicable federal short-term rates are set
forth for the month of November 2020. See Rev.
Rul. 2020-22, page 963.
Section 482.—Allocation
of Income and Deductions
Among Taxpayers
The applicable federal short-term, mid-term,
and long-term rates are set forth for the month of
November 2020. See Rev. Rul. 2020-22, page 963.

Section 483.—Interest on
Certain Deferred Payments
The applicable federal short-term, mid-term,
and long-term rates are set forth for the month of
November 2020. See Rev. Rul. 2020-22, page 963.
Section 1288.—Treatment
of Original Issue Discount
on Tax-Exempt Obligations
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of November 2020. See Rev. Rul. 2020-22, page 963.
Section 7520.—Valuation
Tables
The applicable federal mid-term rates are set
forth for the month of November 2020. See Rev.
Rul. 2020-22, page 963.
Section 7872.—Treatment
of Loans With Below-
Market Interest Rates
The applicable federal short-term, mid-term,
and long-term rates are set forth for the month of
November 2020. See Rev. Rul. 2020-22, page 963.

November 2, 2020 964 Bulletin No. 2020–45

Bulletin No. 2020–45 965 November 2, 2020
Section 3405.—Special
Rules for Pensions,
Annuities, and Certain
Other Deferred Income
(Also, § 6047)
Rev. Rul. 2020-24
Withholding and Reporting
With Respect to Payments
From Qualified Plans to
State Unclaimed Property
Funds
ISSUES
(1) Under the facts presented, is the
payment of Individual C’s accrued benefit
from Plan X subject to federal income tax
withholding under § 3405 of the Internal
Revenue Code?
(2) Is the payment from Plan X subject
to reporting under § 6047?
FACTS
Employer M is the plan administrator
of Plan X, a qualified retirement plan un-
der § 401(a) that does not include desig-
nated Roth accounts under § 402A, hold
employer securities, or provide benefits
described in § 104 (compensation for
injuries or sickness) or § 105 (amounts
received under accident and health
plans). Individual C, a U.S. person under
§ 7701(a)(30)(A) with a calendar year tax-
able year, has an accrued benefit in Plan
X with a value of $900, has not made a
withholding election under § 3405 with
respect to her benefit, and has no invest-
ment in the contract within the meaning of
§ 72 with respect to her benefit. In 2020,
Individual C’s accrued benefit (net of any
applicable withholding) is paid to the
State J unclaimed property fund, a fund
under which a claim for property may be
made by an owner.
1
LAW AND ANALYSIS
(1) Withholding
Section 3405 provides federal income
tax withholding rules with respect to des-
ignated distributions. Under § 3405(d), the
payor or plan administrator shall withhold
from a designated distribution, and be lia-
ble for, payment of the tax required to be
withheld under § 3405. Under § 3405(e)
(1)(A), the term “designated distribution”
means, except as provided in § 3405(e)(1)
(B), any distribution or payment from or
under an employer deferred compensation
plan, an individual retirement plan under
§ 7701(a)(37), or a commercial annuity.
Under § 3405(e)(5), the term “employer
deferred compensation plan” includes any
pension, annuity, profit-sharing, or stock
bonus plan, or other plan deferring the re-
ceipt of compensation. A qualified retire-
ment plan under § 401(a) is an employer
deferred compensation plan.
Section 3405(e)(1)(B)(i), (iii), and (iv)
provides exceptions to treatment as a desig-
nated distribution with respect to amounts
that are wages, amounts that are subject
to withholding on nonresident aliens and
foreign corporations,
2
and distributions de-
scribed in § 404(k)(2) relating to dividends
on employer securities. None of these ex-
ceptions apply under the facts presented. In
addition, § 3405(e)(1)(B)(ii) provides that
a designated distribution does not include
the portion of a distribution or payment it
is reasonable to believe is not includible
in gross income. Under the facts present-
ed, it is not reasonable for Employer M to
believe that the payment of any portion of
Individual C’s accrued benefit from Plan X
is not includible in gross income.
Because none of the statutory exceptions
from treatment as a designated distribution
in § 3405(e)(1)(B) apply to the payment of
Individual C’s accrued benefit from Plan X,
the payment, including the amount withheld,
is a designated distribution. Accordingly, the
payment is subject to federal income tax
withholding under § 3405(d).
(2) Reporting
Section 6047(d) provides that the Sec-
retary of the Treasury shall, by forms or
regulations, require the employer main-
taining a plan from which designated dis-
tributions (as defined in § 3405(e)(1)) may
be made, or the plan administrator of that
plan, to make returns and reports regarding
the plan. However, no such return or report
may be required with respect to distribu-
tions to any person during any year unless
the distributions aggregate $10 or more.
Form 1099-R, Distributions From Pen-
sions, Annuities, Retirement or Profit-Shar-
ing Plans, IRAs, Insurance Contracts, etc.,
is used to satisfy the reporting obligations
under § 6047(d). Under the 2020 instruc-
tions to Form 1099-R, a Form 1099-R
must be filed for each person to whom a
designated distribution of $10 or more has
been made, and the total amount of the dis-
tribution (before income tax or other with-
holding) must be reported in Box 1 of that
form. In addition, under those instructions,
the federal income tax withheld must be re-
ported in Box 4 of the Form 1099-R.
The Plan X payment of Individual C’s
accrued benefit, including both the amount
sent to the State J unclaimed property fund
and the amount withheld, is a designated
distribution under § 3405(e)(1) that ex-
ceeds the reporting threshold. According-
ly, Employer M is required to report that
designated distribution in Box 1, and the
federal income tax withheld in Box 4, of
the Form 1099-R for 2020.
HOLDINGS
(1) The payment of Individual C’s
accrued benefit from Plan X is subject
to federal income tax withholding under
§ 3405.
(2) The payment from Plan X is subject
to reporting under § 6047.
TRANSITION RELIEF
A person will not be treated as failing to
comply with the withholding and reporting
requirements described in this revenue rul-
ing with respect to payments made before
the earlier of January 1, 2022, or the date
it becomes reasonably practicable for the
person to comply with those requirements.
1
This revenue ruling does not address whether the payment to the State J unclaimed property fund otherwise complies with applicable law. For example, it does not address compliance with
any search requirements applicable under state law and does not address matters arising under Title I of the Employee Retirement Income Security Act of 1974, Pub. L. 93-406, 88 Stat. 829,
as amended, for which the Department of Labor has subject matter jurisdiction under Reorganization Plan No. 4 of 1978, 5 U.S.C. App.
2
Under § 3405(e)(1)(B)(iii), a designated distribution does not include a payment that is subject to withholding under the withholding rules applicable to payments to nonresident aliens and
foreign corporations. See § 1441 (Withholding of tax on nonresident aliens), § 1442 (Withholding of tax on foreign corporations), and § 1.1441-4(b)(1)(ii).

November 2, 2020 966 Bulletin No. 2020–45
DRAFTING INFORMATION
The principal author of this revenue
ruling is Angelique Carrington of the Of-
fice of Associate Chief Counsel (Employ-
ee Benefits, Exempt Organizations, and
Employment Taxes). Ms. Carrington may
be reached at (202) 317-4148 (not a toll-
free number).
Section 807 — Rules for
certain reserves
26 CFR 1, 301: Computation and Reporting of Re-
serves for Life Insurance Companies
T.D. 9911
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Parts 1 and 301
Computation and Reporting
of Reserves for Life
Insurance Companies
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains fi-
nal regulations that provide guidance on
the computation of life insurance reserves
and the change in basis of computing
certain reserves of insurance companies.
These final regulations implement recent
legislative changes to the Internal Reve-
nue Code. This document affects entities
taxable as insurance companies.
DATES: Effective date: These regulations
are effective October 13, 2020.
Applicability dates: For dates of applica-
bility, see §§ 1.338-11(d)(7)(iii), 1.807-
1(c), 1.807-3(b), 1.807-4(e), 1.816-1(b),
1.817A-1(c), and 1.6012-2(l).
FOR FURTHER INFORMATION CON-
TACT: Ian Follansbee at (202) 317-4453
(not a toll-free number)
SUPPLEMENTARY INFORMATION:
Background
This document contains amendments
to 26 CFR part 1 under sections 807 and
816 of the Internal Revenue Code (Code).
Sections 807 and 816 were added to the
Code by section 211(a) of the Deficit Re-
duction Act of 1984, Public Law 98-369,
98 Stat. 494. Section 807 was amended by
sections 13513 and 13517 of Public Law
No. 115-97, 131 Stat. 2054, 2143, 2144
(2017), commonly referred to as the Tax
Cuts and Jobs Act (TCJA). These amend-
ments by the TCJA apply to taxable years
beginning after December 31, 2017.
This document also amends or removes
the following regulations in 26 CFR: §§
1.338-11, 1.381(c)(22)-1, 1.801-2, 1.801-
5, 1.801-7, 1.801-8, 1.806-4, 1.807-1,
1.809-2, 1.809-5, 1.810-3, 1.817A-0,
1.817A-1, 1.818-2, 1.818-4, 1.848-1,
1.6012-2, and 301.9100-6T. These chang-
es are conforming changes to regulations
that (i) relate to repealed or amended law,
(ii) reference regulations that are being re-
moved, (iii) have no future application, or
(iv) relate to other regulations made final
by this document.
The Department of the Treasury (Trea-
sury Department) and the IRS published
proposed regulations (REG-132529-17)
in the Federal Register (85 FR 18496)
on April 2, 2020 (proposed regulations). A
correction to the proposed regulations was
published in the Federal Register (85 FR
21129) on April 16, 2020. The Treasury
Department and the IRS received six pub-
lic comments on the proposed regulations.
Copies of the comments received are
available for public inspection at https://
www.regulations.gov or upon request. No
public hearing was requested, and none
was held.
After consideration of all of the com-
ments received on the proposed regula-
tions, the proposed regulations are adopt-
ed as amended by this Treasury decision
(final regulations).
Summary of Comments and
Explanation of Revisions
This section discusses the public com-
ments received on the proposed regula-
tions, explains the revisions adopted in
the final regulations in response to those
comments, and describes guidance the
Treasury Department and the IRS are pro-
viding contemporaneously with publica-
tion of the final regulations in the Federal
Register.
1. Comments and Changes Relating to §
1.807-1 of the Proposed Regulations
Section 807(d) of the Code provides
the method of computing life insurance
reserves for purposes of determining the
income of an insurance company subject
to Federal income tax under subchapter L
of chapter 1 of the Code (subchapter L).
Section 807(d)(1)(A) provides generally
that the amount of life insurance reserves
for a life insurance contract (other than a
variable contract subject to section 807(d)
(1)(B)) is the greater of (i) the net surren-
der value of such contract, or (ii) 92.81
percent of the reserve determined under
the tax-reserve method applicable to the
contract under section 807(d)(3).
Section 1.807-1(a) of the proposed reg-
ulations (proposed § 1.807-1(a)) provides
that no asset adequacy reserve may be
included in the amount of life insurance
reserves under section 807(d). Proposed
§ 1.807-1(a) describes an asset adequacy
reserve as “includ[ing] any reserve that
is established as an additional reserve
based upon an analysis of the adequacy
of reserves that would otherwise be estab-
lished or any reserve that is not held with
respect to a particular contract.” Further,
proposed § 1.807-1(a) provides that an
asset adequacy reserve is “any reserve or
portion of a reserve that would have been
established pursuant to an asset adequacy
analysis required by the National Associ-
ation of Insurance Commissioner’s Valua-
tion Manual 30 as it existed on December
22, 2017, the date of enactment of Public
Law 115-97 . . . .”
Two commenters requested that the
first quoted provision be changed to pro-
vide that asset adequacy reserves are those
reserves established pursuant to an analy-
sis of the adequacy of reserves only if that
analysis is pursuant to the requirements
of the National Association of Insurance
Commissioners’ (NAIC) Valuation Man-
ual 30. Both commenters suggested the
final regulations state what an asset ade-
quacy reserve “is” as opposed to what it

Bulletin No. 2020–45 967 November 2, 2020
“includes.” Moreover, both commenters
would remove the language that includes
within the definition of “asset adequacy
reserve” any reserve that is not held with
respect to a particular contract.
The final regulations generally incor-
porate these comments. The final regu-
lations, however, also incorporate in the
definition of asset adequacy reserves any
reserve that is similar to an asset adequa-
cy reserve that is determined under the
NAIC’s requirements as of the date the
reserve is determined.
With respect to the second provision
previously quoted, one commenter pro-
posed removing the December 22, 2017,
fixed date and replacing it with a reference
to “the date the reserve is determined.”
The commenter believed that such a
change would make the provision more
consistent with section 807(d)(3), which
generally requires using the tax reserve
method that is applicable as of the date the
reserve is determined.
The final regulations do not adopt this
suggestion. Section 807(d)(3) specifically
provides that the tax reserve method (for
example, the Commissioners’ Reserve
Valuation Method (CRVM) or Commis-
sioners’ Annuity Reserve Valuation Meth-
od (CARVM)) to be used in determining
a reserve is the tax reserve method that is
applicable when the reserve is determined.
No such rule exists with respect to asset
adequacy reserves.
The reserves determined based on the
application of those parts of the NAIC
Valuation Manual, as it existed when the
TCJA was enacted, that implement and
define CRVM and CARVM are not asset
adequacy reserves. See Staff of the Joint
Committee on Taxation, 115th Cong.,
General Explanation of Public Law 115-
97, 235 (Comm. Print 2018) (Bluebook)
(“Under NAIC-prescribed principle-based
reserve methodology in effect at the time
of the enactment of the provision, princi-
ple-base[d] reserves for any contract do
not include any asset adequacy reserve
component.”) (citation omitted). On the
other hand, any additional reserve required
to be set aside under Valuation Manual 30,
as it existed when the TCJA was enacted,
based on an analysis of the adequacy of
the reserves otherwise determined, con-
stitutes an asset adequacy reserve under §
1.807-1 of the final regulations.
One commenter proposed the addition
of a general provision explaining the sig-
nificance and selection of the tax reserve
method for a contract. The final regula-
tions include such a provision.
The commenter also proposed the ad-
dition of an example illustrating the deter-
mination of life insurance reserves under
section 807(d)(1) and the exclusion of
asset adequacy reserves from life insur-
ance reserves. The Treasury Department
and the IRS did not include the example
in the final regulations, but the principles
illustrated by the example are explained in
this preamble.
2. Comments and Changes Relating to §
1.807-4 of the Proposed Regulations
Section 807(f)(1) of the Code provides
that if the basis for determining any item
referred to in section 807(c) as of the close
of any taxable year differs from the basis
for such determination as of the close of
the preceding taxable year, then so much
of the difference between (A) the amount
of the item at the close of the taxable year,
computed on the new basis, and (B) the
amount of the item at the close of the tax-
able year, computed on the old basis, as is
attributable to contracts issued before the
taxable year must be taken into account
under section 481 as adjustments attribut-
able to a change in method of accounting
initiated by the taxpayer and made with
the consent of the Secretary.
Section 1.807-4 of the proposed reg-
ulations (proposed § 1.807-4) provides
guidance relating to both the change in
basis of computing reserves of a life in-
surance company and the change in basis
of computing life insurance reserves of
an insurance company other than a life
insurance company (a nonlife insurance
company). Under proposed § 1.807-4(a),
a change in basis of computing an item
referred to in section 807(c) is a change
in method of accounting for purposes of
§ 1.446-1(e), unless § 1.446-1(e) provides
otherwise. Accordingly, under proposed §
1.807-4(a), both a life insurance company
changing the basis of computing an item
referred to in section 807(c) and a nonlife
insurance company changing the basis of
computing life insurance reserves must
follow the administrative procedures pre-
scribed by the Commissioner of Internal
Revenue or his delegate (Commissioner)
to obtain the consent of the Commissioner
to such a change.
A. Relationship between section 446 and
subchapter L
One commenter suggested that §
1.807-4(a) state at the outset that section
807(f) treats a change in basis of com-
puting reserves as a change in method of
accounting. The commenter thought this
would better establish why § 1.446-1(e)
applies to the change in basis of comput-
ing reserves. The final regulations incor-
porate this suggestion. The amendment
of section 807(f) by the TCJA led to the
requirement in § 1.807-4(a) that changes
in basis of computing an item referred to
in section 807(c) must follow the same
administrative procedures as other chang-
es in method of accounting. Accordingly,
this Treasury decision removes or obso-
letes contrary guidance (for example, §
1.806-4 and Rev. Rul. 94-74, 1994-2 C.B.
157).
Another commenter took the position
that a change in basis of computing an
item referred to in section 807(c) is not
a change in method of accounting that
should require consent under section
446(e). The commenter believed that the
IRS’s consent should be needed under
section 481(c) only to reflect a multi-year
spread of a section 481(a) adjustment that
may result from a change in basis of com-
puting reserves. The Treasury Depart-
ment and the IRS do not agree with this
position. The computation of reserves
has always been a method of account-
ing. See Am. Gen. Life & Accident Ins.
Co. v. United States, 90-1 USTC (CCH) ¶
50,010 (M.D. Tenn. 1989) (“[W]hile the
government is correct in classifying the
change at issue as a change in method of
accounting, it is also more specifically a
change in the method of computing re-
serves.”); Rev. Rul. 94-74 (stating that “§
807(f) is a more specific application of
the general tax rules governing a change
in method of accounting”). Under the
specific provisions of former section
807(f), the general change in method of
accounting procedures did not apply to
a change in basis of computing reserves.
With the TCJA’s amendment to section
807(f), the procedures generally applica-

November 2, 2020 968 Bulletin No. 2020–45
ble to a change in method of accounting
apply to a change in basis of computing
reserves under section 807(c). See Blue-
book at 228 (stating that a company that
changes its method of computing re-
serves must comply with applicable IRS
procedures).
The same commenter recommended
that if the final regulations do not remove
the requirement that a change in basis of
computing reserves under section 807(f)
requires consent under section 446(e),
then the preamble to the final regulations
should clarify that section 446(b) does
not apply to the determination of insur-
ance reserves. This recommendation
is similar to another commenter’s rec-
ommendation that the preamble should
acknowledge that the application of the
consent provisions of section 446(e) and
§ 1.446-1(e) does not affect the role of
sections 811(a) and 807(d) with respect
to the determination of section 807(c) re-
serves.
Except in extraordinary circumstanc-
es, section 446(b) does not affect the re-
quirement that a life insurance company
compute its reserves for Federal income
tax purposes as required by subchapter L.
Similarly, subchapter L does not affect the
requirement under section 446(e) that an
insurance company secure the consent of
the Commissioner before changing its ba-
sis of computing reserves.
B. Examples in § 1.807-4(d)
Proposed § 1.807-4 contains four ex-
amples illustrating the principles of pro-
posed § 1.807-4(a) through (c). One com-
menter suggested several clarifications to
Example 1 and Example 2 in proposed §
1.807-4(d). Additionally, the commenter
requested additional guidance on how the
standard for what constitutes a change in
basis of computing reserves applies to
frequently-encountered fact patterns in-
volving life insurance reserves, such as
under principle-based reserve methodol-
ogies.
The final regulations do not include
what had been Example 1 and Example 2
in proposed § 1.807-4(d). The principles
illustrated in these examples are suffi-
ciently illustrated in the remaining exam-
ples. Moreover, the Treasury Department
and the IRS are providing additional
guidance on the fact patterns that consti-
tute a change in basis of computing life
insurance reserves in Rev. Rul. 2020-19,
2020-40 I.R.B. 611, released contempo-
raneously with publication of these final
regulations in the Federal Register.
C. Automatic consent procedures for
reserves of nonlife insurance companies
Currently, section 26.04 of Rev. Proc.
2019-43, 2019-48 I.R.B. 1107, provides
for automatic consent to a change in
method of accounting if that change re-
lates to section 807(c) items (which in-
clude life insurance reserves for a nonlife
insurance company). One commenter
requested that the same treatment be ex-
tended to changes in method of account-
ing for the unearned premium reserves
and the unpaid loss reserves of nonlife
insurance companies.
The final regulations do not incorporate
this request, and the Treasury Department
and the IRS do not anticipate that Rev.
Proc. 2019-43 will be amended to allow
for the requested automatic consent. The
automatic consent procedures provided in
section 26.04 of Rev. Proc. 2019-43 to life
insurance companies for a change in basis
of computing reserves and to nonlife in-
surance companies for a change in basis of
computing life insurance reserves were a
response to the specific change in section
807(f) made by the TCJA. No such change
was made by the TCJA for unearned pre-
mium reserves or unpaid loss reserves of
nonlife insurance companies.
D. Obsoleting of revenue rulings and
notice
The preamble to the proposed regula-
tions proposes obsoleting the following
revenue rulings because they are incon-
sistent with section 807(f), as amended by
the TCJA: Rev. Rul. 2002-6, 2002-1 C.B.
460, Rev. Rul. 94-74, 1994-2 C.B. 157,
Rev. Rul. 80-117, 1980-1 C.B. 143, Rev.
Rul. 80-116, 1980-1 C.B. 141, Rev. Rul.
78-354, 1978-2 C.B. 190, Rev. Rul. 77-
198, 1977-1 C.B. 190, Rev. Rul. 75-308,
1975-2 C.B. 264, Rev. Rul. 74-57, 1974-1
C.B. 163, Rev. Rul. 70-568, 1970-2 C.B.
140, Rev. Rul. 70-192, 1970-1 C.B. 153,
Rev. Rul. 69-444, 1969-2 C.B. 145, Rev.
Rul. 65-240, 1965-2 C.B. 236, Rev. Rul.
65-233, 1965-2 C.B. 228, Rev. Rul. 65-
143, 1965-1 C.B. 261.
One commenter believes Rev. Rul.
2002-6, Rev. Rul. 94-74, and Rev. Rul.
69-444 contain principles that provide
guidance on what constitutes a change in
basis of computing reserves and that addi-
tional guidance is needed if these revenue
rulings are obsoleted. While this Treasury
decision obsoletes those revenue rulings,
the Treasury Department and the IRS are
providing additional guidance on the fact
patterns that constitute a change in basis
of computing life insurance reserves con-
temporaneously with publication of the
final regulations in the Federal Register.
See Rev. Rul. 2020-19.
The preamble to the proposed regu-
lations also proposes to obsolete Notice
2010-29, 2010-15 I.R.B. 547, which pro-
vided interim guidance relating to variable
annuity contracts as a result of the adop-
tion by the NAIC of Actuarial Guideline
43, which describes a principle-based
reserve method. No comments were re-
ceived regarding this proposed obsoles-
cence, and this Treasury decision obso-
letes Notice 2010-29.
E. Revising section 26.04 of Rev. Proc.
2019-43
The preamble to the proposed reg-
ulations describes revisions that the
Treasury Department and the IRS intend
to make to section 26.04 of Rev. Proc.
2019-43. First, section 26.04(2)(b)(ii) of
Rev. Proc. 2019-43 provides that multiple
changes during the same taxable year for
the same type of contract are considered
a single change in basis and the effects of
such changes are netted and treated as a
single section 481(a) adjustment. Section
807(f)(1), however, provides that the sec-
tion 481(a) adjustment is the difference
between the amount of any item referred
to in section 807(c) computed on the
new basis and the amount of such item
computed on the old basis. Accordingly,
the Treasury Department and the IRS in-
tend to revise section 26.04 of Rev. Proc.
2019-43 to require netting of the section
481(a) adjustments at the level of each
item referred to in section 807(c) so there
is a single section 481(a) adjustment for
each of the items referred to in section
807(c).

Bulletin No. 2020–45 969 November 2, 2020
Second, section 26.04(1) of Rev. Proc.
2019-43 provides that the automatic
change procedures apply to a nonlife in-
surance company. The Treasury Depart-
ment and the IRS intend to revise section
26.04 of Rev. Proc. 2019-43 to clarify the
manner in which nonlife insurance com-
panies implement changes to the basis of
computing life insurance reserves (as de-
fined in section 816(b)) during a taxable
year (year of change). Specifically, the
clarification would provide that, if a non-
life insurance company changes the basis
of computing its life insurance reserves,
then for purposes of applying section
832(b)(4), (i) for the year of change, life
insurance reserves at the end of the year
of change with respect to contracts issued
before the year of change are determined
on the old basis and (ii) for the year fol-
lowing the year of change, life insurance
reserves at the end of the preceding tax-
able year with respect to contracts issued
before the year of change are determined
on the new basis. Life insurance reserves
attributable to contracts issued during the
year of change and thereafter must be
computed on the new basis.
One commenter agreed with the in-
tended revisions.
3. Comments and Changes Relating to §
1.807-3 of the Proposed Regulations
Section 13517 of the TCJA added sec-
tion 807(e)(6) to the Code, which provides
that the Secretary of the Treasury or his
delegate (Secretary) “shall require report-
ing (at such time and in such manner as
the Secretary shall prescribe) with respect
to the opening and closing balance of re-
serves and with respect to the method of
computing reserves for purposes of deter-
mining income.” In accordance with sec-
tion 807(e)(6), § 1.807-3 of the proposed
regulations (proposed § 1.807-3) provides
that the IRS may require reporting on
Form 1120-L with respect to the open-
ing and closing balances of the items de-
scribed in section 807(c) and with respect
to the method of computing such items for
the purposes of determining income.
One commenter requested further con-
sultation with the life insurance industry
before any additional reserve reporting
requirements are implemented. According
to the commenter, this consultation will
be necessary to ensure that the informa-
tion provided is useful to the government
and that providing the information is not
unduly burdensome to taxpayers relative
to the information’s utility.
The IRS understands the importance of
obtaining the life insurance industry’s in-
put before changing the reporting require-
ments. Proposed § 1.807-3 is adopted as
final by this Treasury decision, and the
IRS expects to consult with the life insur-
ance industry before making any changes
to reporting requirements. Further, as dis-
cussed in the Special Analysis section of
this preamble, any future changes to tax
return form requirements stemming from
this provision would be subject to bur-
den analysis and public notice and com-
ment under the Paperwork Reduction Act,
which requirements the IRS is committed
to follow.
4. Comments and Changes Relating to §
1.816-1 of the Proposed Regulations
Section 1.816-1(a) of the proposed reg-
ulations (proposed § 1.816-1(a)) provides
that a reserve (other than an asset adequa-
cy reserve) that is computed using a tax re-
serve method as defined in section 807(d)
(3) and that meets the requirements of sec-
tion 816(b)(1) and (b)(2) will not be dis-
qualified as a life insurance reserve solely
because the method used to calculate the
reserve takes into account factors other
than those prescribed by section 816(b)
(1) and (b)(2). Thus, for instance, reserves
calculated using principle-based reserve
methodologies will not fail to qualify as
life insurance reserves solely because the
reserves might be calculated using certain
factors in addition to assumed rates of in-
terest and recognized mortality or morbid-
ity tables.
One commenter requested the pream-
ble for the final regulations state that in
some cases the use of additional factors in
computing reserves for taxable years prior
to the effective date of these final regu-
lations is not prohibited. The commenter
did not want any negative inference that
proposed § 1.816-1 is making permissible
what was before impermissible (namely
using certain additional factors in comput-
ing reserves).
The Treasury Department and the IRS
agree that certain factors other than those
prescribed by section 816(b)(1) and (b)
(2) may be taken into account in deter-
mining life insurance reserves for taxable
years prior to the effective date of these
final regulations if the use of such factors
would make the calculation of the reserve
more accurate. See, e.g., Mutual Benefit
Life Insurance Co. v. Commissioner, 488
F.2d 1101, 1106 (3d Cir. 1974).
5. Comments and Changes Relating to §
1.6012-2 of the Proposed Regulations
The Conference Report to the TCJA
contemplates requiring the electronic fil-
ing of annual statements to improve re-
porting of insurance reserves, as neces-
sary to carry out and enforce section 807.
H.R. Rep. No. 115-466, at 478-79 (2017)
(Conference Report). In response to the
Conference Report, the proposed regu-
lations propose to remove § 1.6012-2(c)
(4), which prohibits an insurance com-
pany that files its Form 1120-L or Form
1120-PC electronically from attaching
its annual statement (or pro forma annual
statement) to its return.
One commenter stated that for some of
the largest groups of companies, the size
limits found in section 2.1.2 of IRS Pub-
lication 4164, Modernized e-File (MeF)
Guide to Software Developers and Trans-
mitters, Processing Year 2020, would
likely be exceeded if the annual statement
were to be filed electronically, and for
other groups of companies, the size lim-
it would likely be exceeded by the return
and the annual statement when combined.
The commenter suggested retaining the
existing rule that electronic filers should
not submit their annual statements with
their returns, or alternatively, changing
the requirement such that electronic filers
must only submit limited parts of the an-
nual statement.
The final regulations retain § 1.6012-
2(c)(4), but it now provides that electronic
filers must file their annual statement or a
portion thereof in accordance with the ap-
plicable rules in the forms or instructions.
The Treasury Department and the IRS an-
ticipate that once the IRS has the capacity
to accept the electronic filing of annual
statements, the tax return forms and in-
structions will require electronic filing
of all or portions of the annual statement.
The IRS, however, expects to consult with

November 2, 2020 970 Bulletin No. 2020–45
the insurance industry before requiring
such electronic filing.
6. Comments and Changes Relating to §
1.817A-1 of the Proposed Regulations
The proposed regulations propose to
remove parts of § 1.817A-1 that pertain
to sections 807(d)(2)(B) and 812(b)(2)
(A). Those sections were removed by the
TCJA. The notice of proposed rulemak-
ing requested comments on whether §
1.817A-1 should continue to provide a
current market interest rate to be used in
computing reserves under section 807(c)
(3) during the temporary guarantee period
of a modified guaranteed contract (MGC)
given that the TCJA modified the flush
language of section 807(c) to provide a
specific interest rate to be used in making
section 807(c)(3) computations.
One commenter recommended that §
1.817A-1 be removed in its entirety. The
final regulations remove provisions re-
lating to section 807(c)(3) but retain the
provision (and related definitions) that
waives section 811(d) for non-equity in-
dexed MGCs during the temporary guar-
antee period, because these rules continue
to remain relevant.
7. Conforming Changes to Regulations
The proposed regulations also propose
to remove or amend the following regu-
latory provisions: §§ 1.338-11, 1.381(c)
(22)-1, 1.801-2, 1.801-5, 1.801-7, 1.801-
8, 1.806-4, 1.809-2, 1.809-5, 1.810-3,
1.817A-0, 1.818-2, 1.818-4, 1.848-1, and
301.9100-6T. These provisions were pro-
posed to be removed or amended because
they related to repealed or amended law
or to regulations that were proposed to be
removed or amended or they had no future
application.
One commenter suggested that parts
of paragraph (a) of § 1.801-7, a provision
proposed to be removed in its entirety,
continue to remain relevant under section
817. By its terms, § 1.801-7 is not appli-
cable to any taxable year beginning after
1962. See § 1.801-7(d). Because § 1.801-7
is not applicable to any taxable year after
1962, the commenter’s suggestion is not
adopted.
More generally, the commenter re-
quested removal of more “deadwood”
provisions than provided for in the notice
of proposed rulemaking. The removal of
additional “deadwood” provisions is be-
yond the scope of this rulemaking. No
other specific comments were received
with respect to these proposed conform-
ing changes.
8. Comments Regarding Foreign-Issued
Life Insurance and Annuity Contracts
The Code contains a statutory defi-
nition of a life insurance contract under
section 7702, rules applicable to certain
flexible premium contracts under section
101(f), distribution on death requirements
under section 72(s), and diversification
requirements under section 817(h). These
statutory requirements, which reflect Con-
gress’s concern that the tax-favored treat-
ment generally accorded life insurance
and annuity contracts was available to
contracts that were too investment orient-
ed or provided for undue tax deferral, are
relevant to the tax treatment of a policy-
holder, annuitant, or beneficiary as well
as the entity that issues or reinsures a life
insurance or annuity contract.
In response to a request to promulgate
regulations that exempt certain contracts
from the statutory requirements of sec-
tions 72(s), 101(f), 817(h), and 7702, the
preamble to the proposed regulations asks
for comments on whether such regulations
should be promulgated. As described in
the preamble to the proposed regulations,
the requested exemption would apply to
contracts issued by a non-U.S. insurance
company and reinsured by a U.S. insur-
ance company if (i) no policyholder, in-
sured, annuitant, or beneficiary with re-
spect to the contract is a U.S. person and
(ii) such contract is regulated as a life in-
surance or annuity contract by a foreign
regulator. The preamble to the proposed
regulations states that the Treasury De-
partment and the IRS are evaluating the
request, including whether to address it as
part of this rulemaking, and requests com-
ments including in respect of statutory
interpretation and implications in various
contexts and provisions outside of sub-
chapter L.
Three comments were received. One
commenter (whose comment was en-
dorsed by another commenter) generally
repeated the original request (but nar-
rowed the requested exemptions to only
sections 7702 and 72(s)) and stated that
such regulations would assist U.S. rein-
surers of exempted contracts to qualify
as life insurance companies under section
816. The commenter asserted that the pro-
posal would (i) align with domestic and
U.S. international tax policy consider-
ations because they would be applicable
only to contracts owned by and benefitting
persons not subject to Federal income tax
and (ii) support policy goals of the TCJA
to bring profitable business operations into
the United States. The commenter further
asserted that such regulations would not
(i) affect the character, source, or separate
category basket in which income derived
from the reinsurance is included for U.S.
withholding tax or foreign tax credit pur-
poses, (ii) alter the application of any ap-
plicable U.S. withholding tax on income
from sources within the United States
paid by a domestic insurance company
to any foreign corporation, or (iii) affect
the treatment under section 59A of any
claims and benefits or any other amounts
paid by a domestic insurance company to
a foreign related party under a reinsurance
contract. The commenter acknowledged
that it may not be possible for a U.S. in-
surance company to know the identity of
a contract’s underlying beneficial own-
ers unless the beneficial owner and the
policyholder were the same person and
requested that U.S. insurance companies
be able to rely upon the Foreign Account
Tax Compliance Act beneficial ownership
rules to determine if a contract has a U.S.
person as a beneficial owner.
Another commenter stated that tax re-
serve deductions are already available for
failed life insurance contracts under other
provisions of section 807(c), just in a dif-
ferent amount than would be the case with
life insurance reserve treatment. The com-
menter stated that there could nevertheless
be benefits of conformity and suggested
an alternative proposal. The commenter
recommended that the Treasury Depart-
ment and the IRS use their authority un-
der sections 811(a) and 7805(a) to issue
regulations that provide that reserves held
by a U.S. reinsurer relating to indemnity
reinsurance of contracts issued by a for-
eign insurance company be treated as life
insurance reserves for purposes of sub-
chapter L if: (i) the underlying contracts

Bulletin No. 2020–45 971 November 2, 2020
are issued by a foreign insurer, (ii) such
contracts are regulated as life insurance or
annuity contracts both under the applica-
ble law in the foreign jurisdiction and by
the regulator of the reinsuring domestic
insurance company, (iii) the NAIC pre-
scribes reserves for such contracts that are
computed as reserves applicable to life in-
surance or annuity contracts, and (iv) the
initial issuance of the insurance contract
to the policyholder was not through the
conduct of a trade or business within the
United States.
The considerations surrounding the
issuance of the requested regulations
are complex and require further study.
Accordingly, the Treasury Department
and the IRS have decided not to issue
the requested regulations as part of this
rulemaking and will continue to carefully
consider these comments.
Applicability Dates
The rules in the final regulations apply
to taxable years beginning after October
13, 2020.
A taxpayer may rely on § 1.807-4 or
1.816-1 of the proposed regulations for a
taxable year beginning after December 31,
2017, and on or before October 13, 2020.
Alternatively, a taxpayer may choose to
apply § 1.807-4, 1.816-1, or 1.817A-1(b)
of the final regulations to a taxable year
beginning after December 31, 2017, the
effective date of the revision of section
807 made by the TCJA, and on or before
October 13, 2020, provided the taxpayer
consistently applies the relevant regula-
tion to that taxable year and all subsequent
taxable years. See section 7805(b)(7).
Effect on Other Documents
The following revenue rulings are
obsoleted for taxable years beginning af-
ter October 13, 2020: Rev. Rul. 2002-6,
2002-1 C.B. 460, Rev. Rul. 94-74, 1994-2
C.B. 157, Rev. Rul. 80-117, 1980-1 C.B.
143, Rev. Rul. 80-116, 1980-1 C.B. 141,
Rev. Rul. 78-354, 1978-2 C.B. 190, Rev.
Rul. 77-198, 1977-1 C.B. 190, Rev. Rul.
75-308, 1975-2 C.B. 264, Rev. Rul. 74-57,
1974-1 C.B. 163, Rev. Rul. 70-568, 1970-
2 C.B. 140, Rev. Rul. 70-192, 1970-1 C.B.
153, Rev. Rul. 69-444, 1969-2 C.B. 145,
Rev. Rul. 65-240, 1965-2 C.B. 236, Rev.
Rul. 65-233, 1965-2 C.B. 228, and Rev.
Rul. 65-143, 1965-1 C.B. 261.
Notice 2010-29 is obsoleted for taxable
years beginning after December 31, 2017.
Special Analyses
This regulation is not subject to review
under section 6(b) of Executive Order
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.
Paperwork Reduction Act
The collection of information relating
to the final regulations was submitted to
the Office of Management and Budget for
review under OMB Control Number 1545-
0123 in accordance with the Paperwork Re-
duction Act of 1995 (44 U.S.C. 3507(d)).
In response to the Conference Report
and comments on the proposed regu-
lations, § 1.6012-2(c)(4), as revised by
the final regulations, provides that an
insurance company should include the
insurance company’s annual statement
(as defined in § 1.6012-2(c)(5)), or a por-
tion thereof, with an electronically filed
Federal income tax return (Form 1120-L
for a life insurance company and Form
1120-PC for a nonlife insurance compa-
ny) as required by the applicable forms
or instructions. Federal income tax items
of an insurance company are determined
in part based upon the insurance compa-
ny’s annual statement. Providing the an-
nual statement, or a portion thereof, to
the IRS with an electronically filed Fed-
eral income tax return will allow the IRS
to better and more efficiently examine
an insurance company’s Federal income
tax return. However, until the applicable
forms or instructions are revised, the cur-
rent rules for including the annual state-
ment with an electronically filed Federal
income tax return continue to apply.
For purposes of the Paperwork Reduc-
tion Act, the burden for the collection of
information associated with § 1.6012-2 of
the final regulations will be reflected in the
burden on the Form 1120-L and in the bur-
den on the Form 1120-PC (OMB Control
Number 1545-0123) when the burden for
each is revised to reflect the collection of
information associated with § 1.6012-2 of
the final regulations. The respondents to the
collection of information are life insurance
companies that file the Form 1120-L elec-
tronically and nonlife insurance companies
that file the Form 1120-PC electronically.
The Treasury Department and the IRS ex-
pect to consult with the life insurance in-
dustry before making any changes to these
reporting requirements.
In accordance with section 807(e)(6),
as added by the TCJA, § 1.807-3 of the
final regulations provides that the IRS
may require reporting on Form 1120-L
of the opening balance and closing bal-
ance of items described in section 807(c)
(for example, life insurance reserves) and
the method of computing such items for
purposes of determining income. Provid-
ing this information will allow the IRS
to better examine an insurance compa-
ny’s Federal income tax return. However,
under § 1.807-3 of the final regulations,
this information is not required to be pro-
vided on any prescribed forms, such as
the Form 1120-L, until the relevant pre-
scribed forms or instructions are revised
to require the reporting of such informa-
tion.
For purposes of the Paperwork Reduc-
tion Act, the burden for the collection of
information associated with § 1.807-3 of
the final regulations will be reflected in
the burden on the Form 1120-L (OMB
Control Number 1545-0123) when the
burden is revised to reflect the collection
of information associated with § 1.807-3
of the final regulations. The respondents
to the collection of information are life in-
surance companies that file a Form 1120-
L. The Treasury Department and the IRS
expect to consult with the life insurance
industry before making any changes to
these reporting requirements.
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless it dis-
plays a valid control number assigned by
the Office of Management and Budget.
Regulatory Flexibility Act
It is hereby certified that the final regu-
lations will not have a significant econom-
ic impact on a substantial number of small
entities pursuant to the Regulatory Flexi-
bility Act (5 U.S.C. chapter 6).

November 2, 2020 972 Bulletin No. 2020–45
Section 13517 of the TCJA added sec-
tion 807(e)(6) to the Code. Under section
807(e)(6), the Secretary may require re-
porting (at such time and in such manner
as the Secretary shall prescribe) with re-
spect to the opening balances and the clos-
ing balances of reserves and with respect
to the method of computing reserves for
purposes of determining income. Section
1.807-3 of the final regulations allows the
IRS to require the reporting of this infor-
mation on any prescribed forms, such as
the Form 1120-L.
The Conference Report provides that,
under existing authority, the Secretary
may require an insurance company to
provide its annual statement via a link,
electronic copy, or other similar means.
See Conference Report at 478-79. Section
1.6012-2(c)(4) of the final regulations pro-
vides that an insurance company should
include the insurance company’s annual
statement, or a portion thereof, with an
electronically filed Federal income tax
return (Form 1120-L for a life insurance
company and Form 1120-PC for a nonlife
insurance company) as required by the
applicable forms or instructions. Under
current procedures, an insurance company
can only electronically file a Form 1120-L
or Form 1120-PC if the insurance com-
pany is part of an affiliated group filing a
consolidated return, the parent of which
files a Form 1120. Although data are not
readily available, the Treasury Depart-
ment and the IRS expect that any report-
ing burden associated with § 1.6012-2(c)
will fall primarily on financial and insur-
ance firms with annual receipts greater
than $41.5 million and, therefore, will not
affect a substantial number of small enti-
ties. See 13 CFR 121.201, sector 52 (fi-
nance and insurance).
As stated in the preceding paragraph, the
rule is not expected to affect a substantial
number of small entities; however, even if
a substantial number of small entities were
affected, the economic impact of the regu-
lation is not likely to be significant. Section
1.807-3 of the final regulations is limited in
scope to time and manner of information
reporting, and any economic impact asso-
ciated with this regulation is expected to be
minimal. Further, the information reported
to the IRS is information that the insurance
company has readily available and the
Treasury Department and the IRS expect
to consult with the life insurance industry
before making any changes to the reporting
requirements. Accordingly, the Secretary
certifies that the final regulations will not
have a significant economic impact on a
substantial number of small entities.
Pursuant to section 7805(f) of the
Code, the notice of proposed rulemaking
preceding the Final Regulations was sub-
mitted to the Chief Counsel for the Office
of Advocacy of the Small Business Ad-
ministration for comment on its impact
on small business, and no comments were
received from the Chief Counsel for the
Office of Advocacy of the Small Business
Administration.
Drafting Information
The principal author of these regula-
tions is Ian Follansbee, Office of Associ-
ate Chief Counsel (Financial Institutions
and Products), IRS. However, other per-
sonnel from the Treasury Department and
the IRS participated in their development.
Statement of Availability of IRS
Documents
The IRS notices, revenue procedures,
and revenue rulings cited in this pream-
ble are published in the Internal Revenue
Bulletin (or Cumulative Bulletin) and are
available from the Superintendent of Doc-
uments, U.S. Government Publishing Of-
fice, Washington, DC 20402, or by visit-
ing the IRS website at http://www.irs.gov.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and record-
keeping requirements.
26 CFR Part 301
Employment taxes, Estate taxes, Ex-
cise taxes, Gift taxes, Income taxes, Pen-
alties, Reporting and recordkeeping re-
quirements.
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 1 and 301
are amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding a sectional
authority for § 1.807-3 in numerical order
to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
* * * * *
Section 1.807-3 also issued under 26
U.S.C. 807(e)(6).
* * * * *
Par. 2. Section 1.338-11 is amended by:
1. Revising paragraph (d)(2).
2. In paragraph (d)(3)(i), removing
the language “and (d)(3)(iii)” and adding
“through (iv)” in its place.
3. Redesignating paragraph (d)(3)(iii)
as paragraph (d)(3)(iv).
4. Adding a new paragraph (d)(3)(iii).
5. Revising newly redesignated para-
graph (d)(3)(iv).
6. Adding paragraph (d)(7)(iii).
The revisions and additions read as fol-
lows:
§ 1.338-11 Effect of section 338 election
on insurance company targets.
* * * * *
(d) * * *
(2) Exception. New target is not treat-
ed as receiving additional premium under
paragraph (d)(1) of this section if it is un-
der state receivership as of the close of the
taxable year for which the increase in re-
serves occurs.
(3) * * *
(iii) Increases in section 807(c) re-
serves. The positive amount with respect
to the items referred to in section 807(c)
other than discounted unpaid loss reserves
is the sum of the net increases in such
items that are required to be taken into ac-
count under section 807(f).
(iv) Increases in other reserves. The
positive amount with respect to reserves
other than discounted unpaid loss re-
serves and other items referred to in sec-
tion 807(c) is the net increase of those
reserves due to changes in estimate,
methodology, or other assumptions used
to compute the reserves (including the
adoption by new target of a methodology
or assumptions different from those used
by old target).
* * * * *
(7) * * *

Bulletin No. 2020–45 973 November 2, 2020
(iii) Application of paragraphs (d)(2)
and (3) of this section. Paragraphs (d)(2)
and (3) of this section apply to taxable
years beginning after October 13, 2020.
For taxable years beginning on or before
such date, see paragraph (d) of this section
as contained in 26 CFR part 1 revised as
of April 1, 2020.
* * * * *
§ 1.381(c)(22)-1 [Amended]
Par. 3. In § 1.381(c)(22)-1, paragraph
(b)(6) is removed and reserved.
§ 1.801-2 [Amended]
Par. 4. Section 1.801-2 is amended in
the second sentence by removing the lan-
guage “1.801-7” and adding “1.801-6” in
its place.
§ 1.801-5 [Amended]
Par. 5. In § 1.801-5, paragraph (c) is re-
moved and reserved.
§ 1.801-7 [Removed and reserved]
Par. 6. Section 1.801-7 is removed and
reserved.
§ 1.801-8 [Amended]
Par. 7. In § 1.801-8, paragraph (e) is re-
moved and reserved.
§ 1.806-4 [Removed]
Par. 8. Section 1.806-4 is removed.
Par. 9. Section 1.807-1 is revised to
read as follows:
§ 1.807-1 Computation of life insurance
reserves.
(a) Tax reserve method. For purposes
of determining the amount of life insur-
ance reserves for a contract under section
807(d)(1), section 807(d)(2) requires the
determination of the amount of the reserve
for a contract using the tax reserve method
applicable to the contract. Under section
807(d)(3), the tax reserve method appli-
cable to the contract is the Commission-
ers’ Reserve Valuation Method (CRVM),
the Commissioners’ Annuities Reserve
Valuation Method (CARVM), or other re-
serve method prescribed by the National
Association of Insurance Commissioners
(NAIC) that applies to the contract as of
the date the reserve is determined. If the
NAIC has not prescribed a reserve method
that covers the contract, a reserve meth-
od that is consistent with the CRVM, the
CARVM, or other NAIC-prescribed meth-
od as of the date the reserve is determined
(whichever is most appropriate) must be
used.
(b) No asset adequacy reserve. The life
insurance reserve determined under sec-
tion 807(d)(1) does not include any asset
adequacy reserve.
(1) An asset adequacy reserve is—
(i) Any reserve that is established as an
additional reserve based upon an analysis
of the adequacy of reserves that would
otherwise be established in accordance
with the requirements set forth in the
NAIC Valuation Manual, such as the
CRVM or CARVM as applicable, or
(ii) Any similar reserve.
(2) In determining whether a reserve
is a life insurance reserve, the label
placed on such reserve is not determina-
tive, provided, however, any reserve or
portion of a reserve that would have been
established pursuant to an asset adequacy
analysis required by the NAIC’s Valua-
tion Manual 30 as it existed on Decem-
ber 22, 2017, the date of enactment of
Public Law 115-97, is an asset adequacy
reserve.
(c) Applicability date. The rules of this
section apply to taxable years beginning
after October 13, 2020.
Par. 10. Sections 1.807-3 and 1.807-4
are added before the undesignated center
heading “Gain and Loss From Opera-
tions” to read as follows:
§ 1.807-3 Reporting of reserves.
(a) Reserve reporting. A life insur-
ance company subject to tax under sec-
tion 801 is required to make a return on
Form 1120-L, U.S. Life Insurance Com-
pany Income Tax Return. The Internal
Revenue Service may require reporting
with respect to the opening balance and
closing balance of items described in
section 807(c) and with respect to the
method of computing such items for
purposes of determining income. Such
reporting may provide for the manner in
which separate account items are report-
ed. (See section 6011 and § 301.6011-1
of this chapter.)
(b) Applicability date. The rules of this
section apply to taxable years beginning
after October 13, 2020.
§ 1.807-4 Adjustment for change in
computing reserves.
(a) Requirement to follow administra-
tive procedures. Under section 807(f),
a change in basis of computing an item
referred to in section 807(c) is a change
in method of accounting. According-
ly, except as provided in § 1.446-1(e),
a change in basis of computing an item
referred to in section 807(c) is a change
in method of accounting for purposes
of § 1.446-1(e). Before computing such
item under a new basis, a life insurance
company must obtain the consent of the
Commissioner of Internal Revenue or
his delegate (Commissioner) pursuant to
administrative procedures prescribed by
the Commissioner. Similarly, an insur-
ance company other than a life insurance
company (a nonlife insurance company)
that changes its basis of computing life
insurance reserves must obtain the con-
sent of the Commissioner pursuant to ad-
ministrative procedures prescribed by the
Commissioner.
(b) Section 481 adjustment—(1) In
general. If the basis of computing any
item referred to in section 807(c) as of
the close of any taxable year (the year of
change) differs from the basis of com-
puting such item at the close of the pre-
ceding taxable year, then the difference
between the amount of the item at the
close of the taxable year computed on the
new basis and the amount of the item at
the close of the taxable year computed on
the old basis that is attributable to con-
tracts issued before the taxable year, is
taken into account under section 481 and
§§ 1.481-1 through 1.481-5 as an adjust-
ment attributable to a change in method
of accounting.
(2) Loss of company status. If for any
taxable year a taxpayer that was an in-
surance company for the year of change
is no longer an insurance company, then
the taxpayer must take into account in the
preceding taxable year (that is, the last

November 2, 2020 974 Bulletin No. 2020–45
taxable year it was an insurance compa-
ny) the balance of any section 481(a) ad-
justment determined under paragraph (b)
(1) of this section. A taxpayer that was an
insurance company for the year of change
does not accelerate the balance of any sec-
tion 481(a) adjustment determined under
paragraph (b)(1) of this section merely
because it changes from a life insurance
company to a nonlife insurance company
or because it changes from a nonlife in-
surance company to a life insurance com-
pany.
(c) Effect on determining increase or
decrease in reserves—(1) Effect under
section 807(a) and (b). If there is a change
in basis of computing any item referred to
in section 807(c) for a taxable year, then,
for purposes of section 807(a) and (b), the
closing balance for such item for the year
of change with respect to contracts issued
before the year of change is determined
on the old basis and the opening balance
for such item for the next taxable year for
such contracts is computed on the new ba-
sis.
(2) Effect under section 832. The fol-
lowing rules apply for purposes of section
832(b)(4):
(i) For the year of change, life insur-
ance reserves at the end of the year of
change with respect to contracts issued
before the year of change are determined
on the old basis.
(ii) For the taxable year following the
year of change, life insurance reserves at
the end of the preceding taxable year (that
is, the year of change) with respect to con-
tracts issued before the year of change are
determined on the new basis.
(d) Examples. The principles of para-
graphs (a) through (c) of this section are
illustrated by the following examples.
For purposes of these examples and ex-
cept as otherwise provided, IC is a life in-
surance company within the meaning of
section 816(a) that issues life insurance
and annuity contracts. IC is required to
determine the amount of life insurance
reserves under section 807(d) and to take
net increases or decreases in the reserves
into account in computing life insurance
company taxable income. IC’s reserve
for each insurance contract at issue ex-
ceeds the net surrender value for such
contract and does not exceed the statuto-
ry reserve for such contract. IC is on an
accrual method and uses a calendar year
as its taxable year.
(1) Example 1—(i) Facts. In 2021, IC changed
the basis of computing the amount of life insur-
ance reserves for a certain type of life insurance
contract as described in section 807(f). Both the
basis used for computing the reserves for the rele-
vant contracts at the close of the 2020 taxable year
(old basis) and the basis of computing the reserves
for the relevant type of contract at the close of the
2021 taxable year (new basis) are consistent with
the applicable Commissioners’ Reserve Valuation
Method. IC followed the administrative procedures
prescribed by the Commissioner to obtain consent
to change the basis of computing these reserves.
IC determined that the life insurance reserves as
of December 31, 2021, for the relevant contracts
issued prior to 2021 were $110x if computed using
the old method and $120x if computed using the
new method. IC also determined that the life in-
surance reserves as of December 31, 2021, for the
relevant contracts issued during 2021 were $15x
using the new basis.
(ii) Analysis. IC must take into account under
section 481 and the administrative procedures pre-
scribed by the Commissioner the $10x difference be-
tween the reserves for the relevant contracts issued
prior to 2021 computed under the old basis ($110x)
and the reserves for such contracts computed under
the new basis ($120x). For purposes of determining
any net increase or net decrease in reserves in taxable
year 2021 under section 807(a) or (b), IC’s closing
balance of life insurance reserves computed under
section 807(d) with respect to the relevant contracts
is $110x for contracts issued prior to 2021 (comput-
ed on the old basis) and $15x for contracts issued
during 2021 (computed on the new basis). IC’s open-
ing balance in 2022 for life insurance reserves for
the relevant contracts is $135x (computed on the new
basis).
(2) Example 2—(i) Facts. The facts are the same
as in paragraph (d)(1) of this section (the facts in
Example 1), except that IC is an insurance company
that is not a life insurance company. IC is required to
compute taxable income under section 832.
(ii) Analysis. IC must take into account under
section 481 and the administrative procedures pre-
scribed by the Commissioner the $10x difference
between the reserves for the relevant contracts is-
sued prior to 2021 computed under the old basis
($110x) and the reserves for such contracts com-
puted under the new basis ($120x). For purposes of
determining the premiums earned on insurance con-
tracts during the taxable year as described in section
832(b)(4) for the year of change, the life insurance
reserves at the end of the taxable year are $110x
for contracts issued prior to 2021 (computed on
the old basis) and $15x for contracts issued during
2021 (computed on the new basis). For purposes of
determining the premiums earned on insurance con-
tracts during the taxable year as described in section
832(b)(4) for the taxable year following the year of
change, the life insurance reserves at the end of the
preceding taxable year (the year of change) with re-
spect to relevant contracts are $135x (computed on
the new basis).
(e) Applicability date. The rules of this
section apply to taxable years beginning
after October 13, 2020. However, a tax-
payer may choose to apply the rules of this
section for a taxable year beginning after
December 31, 2017, the effective date
of the revision of section 807 by Public
Law 115-97, and on or before October 13,
2020, provided the taxpayer consistently
applies the rules of this section to that tax-
able year and all subsequent taxable years.
See section 7805(b)(7).
§ 1.809-2 [Removed and reserved]
Par. 11. Section 1.809-2 is removed and
reserved.
§ 1.809-5 [Amended]
Par. 12. Section 1.809-5 is amended by
removing the language “and § 1.810-3”
from the last sentence of paragraph (a)(5)
(iii).
§ 1.810-3 [Removed]
Par. 13. Section 1.810-3 is removed.
Par. 14. Section 1.816-1 is added before
the undesignated center heading “Miscel-
laneous Provisions” to read as follows:
§ 1.816-1 Life insurance reserves.
(a) Definition of life insurance re-
serves. Except as provided in section
816(h), a reserve that meets the require-
ments of section 816(b)(1) and (2) will
not be disqualified as a life insurance re-
serve solely because the method used to
compute the reserve takes into account
other factors, provided that the method
used to compute the reserve is a tax re-
serve method as defined in section 807(d)
(3) and that such reserve is not an asset
adequacy reserve as described in § 1.807-
1(b).
(b) Applicability date. The section ap-
plies to taxable years beginning after Oc-
tober 13, 2020. However, a taxpayer may
choose to apply the rules of this section for
a taxable year beginning after December
31, 2017, the effective date of the revision
of section 807 by Public Law 115-97, and
on or before October 13, 2020, provided
the taxpayer consistently applies the rules
of this section to that taxable year and
all subsequent taxable years. See section
7805(b)(7).

Bulletin No. 2020–45 975 November 2, 2020
§ 1.817A-0 [Removed]
Par. 15. Section 1.817A-0 is removed.
Par. 16. Section 1.817A-1 is amended
by:
1. Removing paragraphs (a)(5) and (6).
2. Revising paragraph (b).
3. Removing paragraph (c).
4. Redesignating paragraph (d) as para-
graph (c).
5. Revising newly designated para-
graph (c).
The revisions read as follows:
§ 1.817A-1 Certain modified
guaranteed contracts.
* * * * *
(b) Waiver of section 811(d) for certain
non-equity-indexed modified guaranteed
contracts. Section 811(d) is waived during
the temporary guarantee period when ap-
plied to non-equity-indexed MGCs.
(c) Applicability dates. Paragraph (b)
of this section applies to taxable years be-
ginning after October 13, 2020. However,
a taxpayer may choose to apply the rules
of paragraph (b) of this section for a tax-
able year beginning after December 31,
2017, the effective date of the revision of
section 807 by Public Law 115-97, and on
or before October 13, 2020, provided the
taxpayer consistently applies the rules of
paragraph (b) of this section to that tax-
able year and all subsequent taxable years.
See section 7805(b)(7). For taxable years
beginning on or before October 13, 2020,
see paragraph (b) of this section as con-
tained in 26 CFR part 1 revised as of April
1, 2020.
§ 1.818-2 [Amended]
Par. 17. Section 1.818-2 is amended by
removing paragraph (c).
§ 1.818-4 [Removed and reserved]
Par. 18. Section 1.818-4 is removed and
reserved.
§ 1.848-1 [Amended]
Par. 19. Section 1.848-1 is amended in
paragraph (b)(2)(i) by removing the lan-
guage “section 807(e)(4)” and adding the
language “section 807(e)(3)” in its place.
Par. 20. Section 1.6012-2 is amended
by:
1. Revising paragraph (c)(4).
2. Revising paragraph (l).
The revisions read as follows:
§ 1.6012-2 Corporations required to
make returns of income.
* * * * *
(c) * * *
(4) Special rule for insurance com-
panies filing their Federal income tax
returns electronically. If an insurance
company described in paragraph (c)(1),
(2), or (3) of this section files its Fed-
eral income tax return electronically, it
must include on or with such return its
annual statement (or pro forma annual
statement), or a portion thereof, as and
to the extent required by forms or in-
structions. If the full annual statement
is not required to be included with the
return, such statement must be available
at all times for inspection by authorized
Internal Revenue Service officers or em-
ployees and retained for so long as such
statements may be material in the admin-
istration of any internal revenue law. See
§ 1.6001-1(e).
* * * * *
(l) Applicability date. Paragraph (c) of
this section applies to any taxable year be-
ginning after October 13, 2020. For tax-
able years beginning on or before October
13, 2020, see paragraph (c) of this section
as contained in 26 CFR part 1 in effect on
April 1, 2020.
PART 301—PROCEDURE AND
ADMINISTRATION
Par. 21. The authority citation for part
301 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
* * * * *
Par. 22. Section 301.9100-6T is amend-
ed by:
1. Adding a title to the table in para-
graph (a)(1).
2. Removing from the table in para-
graph (a)(1) the three entries for “211”
and the entries for “216(c)(1),” “216(c)
(2),” “217(i),” and “217(l)(2)(B).”
3. Removing and reserving paragraph
(a)(2)(iii).
4. Removing paragraph (a)(3)(v).
5. In paragraph (a)(4):
i. Removing “211 (Code section 810(b)
(3)), 216(c) (1) and (2), 217(l),” from the
first sentence.
ii. Removing “211 (Code sections
806(d)(4), and 807(d)(4)(C)), 217(i),”
from the second sentence.
iii. Removing the last sentence.
The addition reads as follows:
§ 301.9100-6T Time and manner of
making certain elections under the
Deficit Reduction Act of 1984.
(a) * * *
(1) * * *
Table 1 To paragraph (a)(1)
* * * * *
Sunita Lough,
Deputy Commissioner for Services
and Enforcement.
Approved September 1, 2020.
David J. Kautter,
Assistant Secretary of the Treasury
(Tax Policy).
(Filed by the Office of the Federal Register on Oc-
tober 09, 2020, 8:45 a.m., and published in the issue
of the Federal Register for October 13, 2020, 85 FR
64386)
Section 152. — Dependent
defined
26 CFR 1.152-2(b), (e); 26 CFR 1.24-1: Dependent
Defined
T.D. 9913
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1
Dependent Defined
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.

November 2, 2020 976 Bulletin No. 2020–45
SUMMARY: This document contains fi-
nal regulations that clarify the definition
of a “qualifying relative” for purposes of
various provisions of the Internal Reve-
nue Code (Code) for taxable years 2018
through 2025. These regulations general-
ly affect taxpayers who claim Federal in-
come tax benefits that require a taxpayer
to have a qualifying relative.
DATES: Effective Date: These regulations
are effective on October 13, 2020.
Applicability Date: Sections 1.24-1 and
1.152-2(b) of these regulations apply to
taxable years beginning on or after Octo-
ber 13, 2020. Section 1.152-2(e) of these
regulations applies to taxable years ending
after August 28, 2018, the date the Depart-
ment of the Treasury (Treasury Depart-
ment) and the IRS issued Notice 2018-70,
2018-38 I.R.B. 441.
FOR FURTHER INFORMATION CON-
TACT: Victoria J. Driscoll at (202) 317-
4718 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains amendments
to the Income Tax Regulations (26 CFR
part 1) under sections 24 and 152 of the
Code relating to statutory amendments
enacted in Public Law 115-97, 131 Stat.
2054 (2017), commonly referred to as the
Tax Cuts and Jobs Act (TCJA).
Section 152(a) generally defines a
“dependent” as a “qualifying child” or a
“qualifying relative.” The definition of a
qualifying relative in section 152(d)(1) in-
cludes the requirement that the individual
have gross income for the calendar year
that is less than the “exemption amount”
as defined in section 151(d) (exemption
amount). Such an individual also must sat-
isfy the requirement of section 152(d)(1)
(C) that the individual receive more than
one-half of his or her support from the tax-
payer claiming the individual as a quali-
fying relative (support test). As described
in parts I through IV of this Background,
these final regulations provide that, in
determining whether an individual is a
qualifying relative for purposes of various
provisions of the Code that refer to sec-
tion 152 in years in which the exemption
amount is zero, the section 151(d) exemp-
tion amount will be the inflation-adjusted
section 152(d)(1)(B) exemption amount in
the annual revenue procedure setting forth
inflation-adjusted items that is published
in the Internal Revenue Bulletin.
I. Exemption Amount
Generally, section 151 allows a taxpay-
er to claim a deduction equal to the ex-
emption amount for each of the taxpayer
and his or her spouse, and for any depen-
dents. Prior to the TCJA, section 151(d)
provided for an exemption amount of
$2,000 that was adjusted annually for in-
flation beginning with calendar year 1990.
Before the enactment of the TCJA, the
IRS had determined that the exemption
amount for taxable year 2018 was $4,150.
Rev. Proc. 2017-58, 2017-45 I.R.B. 489,
modified and superseded by Rev. Proc.
2018-18, 2018-10 I.R.B. 392.
Section 11041(a)(2) of the TCJA add-
ed section 151(d)(5) to provide special
rules for taxable years 2018 through
2025 regarding the exemption amount.
Section 151(d)(5)(A) provides that, for
a taxable year beginning after December
31, 2017, and before January 1, 2026,
the exemption amount is zero, thereby
suspending the deductions for personal
exemptions and the dependency exemp-
tion. H.R. Rep. No. 115-466, at 202-204
(2017) (Conference Report). However,
section 151(d)(5)(B) provides that the re-
duction of the exemption amount to zero
is not taken into account in determining
whether a deduction under section 151
is allowed or allowable to a taxpayer, or
whether a taxpayer is entitled to a de-
duction under section 151, for purposes
of any other provision of the Code. The
Conference Report states that this provi-
sion clarifies that the reduction of the per-
sonal exemption to zero “should not alter
the operation of those provisions of the
Code which refer to a taxpayer allowed a
deduction . . . under section 151,” includ-
ing the child tax credit in section 24(a).
Id. at 203 n.16. For example, the defini-
tion of head of household in section 2(b)
(1)(A) includes the requirement that the
taxpayer maintain as his or her home a
household for a qualifying individual for
a specified period of time. A qualifying
individual under section 2(b)(1)(A)(ii)
includes a person who is a qualifying rel-
ative under section 152(d) if the taxpayer
is entitled to a deduction under section
151 for the person for the taxable year.
II. Support Test
The section 152(d)(1)(C) support test
requires that an individual receive more
than one-half of his or her support from
the taxpayer to be claimed as a qualify-
ing relative of that taxpayer. Prior to the
TCJA, payments of alimony or separate
maintenance paid to a spouse or former
spouse were not treated as support of a
dependent provided by the payor spouse.
Additionally, alimony and separate main-
tenance payments were deductible by the
payor spouse and includible in income by
the recipient spouse under sections 61(a)
(8), 71(a), and 215(a) of the Code. Un-
der section 71(c), child support payments
were not treated as alimony includible in
income.
Section 11051 of the TCJA repealed
sections 61(a)(8), 71 and 215, and, in a
conforming change, also repealed section
682 of the Code for any divorce or sep-
aration instrument executed after 2018,
and for any instrument executed before
2019 and later modified to apply the pro-
visions of the TCJA. Consistent with prior
law, the TCJA provides that payments of
alimony or separate maintenance paid to
a spouse or former spouse are not treated
as support of a dependent provided by the
payor spouse. To conform with the repeal
of sections 71 and 682 by the TCJA, sec-
tion 11051(b)(3)(B) of the TCJA amended
section 152(d)(5) of the Code regarding
the source of a qualifying relative’s sup-
port by revising the language of section
152(d)(5) to eliminate references to for-
mer sections 71 and 682.
III. Credit for Other Dependents
Section 11022(a) of the TCJA amend-
ed section 24 of the Code to create a $500
credit for certain dependents of a taxpay-
er other than a qualifying child described
in section 24(c) for whom the child tax
credit is allowed. The $500 credit ap-
plies to two categories of dependents: (1)
Qualifying children for whom a child tax
credit is not allowed, and (2) qualifying

Bulletin No. 2020–45 977 November 2, 2020
relatives as defined in section 152(d).
Section 24(h)(4)(A) and (C). Like the
amendment to section 151(d) reducing
the exemption amount to zero, this new
credit applies for taxable years 2018
through 2025. The Conference Report
explains that “[t]he credit is further mod-
ified to temporarily provide for a $500
nonrefundable credit for qualifying de-
pendents other than qualifying children.
The provision generally retains the pres-
ent-law definition of dependent.” H.R.
Rep. No. 115-466, at 227.
IV. Administrative Action
On August 28, 2018, the Treasury De-
partment and the IRS issued Notice 2018-
70. This notice announced the intent to
issue proposed regulations providing that
the reduction of the exemption amount to
zero under section 151(d)(5)(A) for tax-
able years 2018 through 2025 will not be
taken into account in determining wheth-
er an individual meets the requirement of
section 152(d)(1)(B) to be a qualifying
relative. Notice 2018-70 also stated that,
before the issuance of the proposed regu-
lations described in the notice, a taxpayer
may rely on the rules described in the no-
tice.
On June 9, 2020, the Treasury Depart-
ment and the IRS published a notice of
proposed rulemaking (REG-118997-19)
in the Federal Register (85 FR 35233)
proposing regulations under sections 24
and 152 (proposed regulations). Consis-
tent with Notice 2018-70, the proposed
regulations provide that, in determining
whether an individual is a qualifying rel-
ative for purposes of various provisions
of the Code that refer to section 152 in
taxable years in which the exemption
amount is zero, the section 151(d) exemp-
tion amount will be the inflation-adjusted
section 152(d)(1)(B) exemption amount in
the annual revenue procedure setting forth
inflation-adjusted items that is published
in the Internal Revenue Bulletin. Thus, the
exemption amount to be used for this pur-
pose is $4,150 for taxable year 2018 (sec-
tion 3.24 of Rev. Proc. 2017-58, 2017-45
I.R.B. 489, modified and superseded by
Rev. Proc. 2018-18, 2018-10 I.R.B. 392);
$4,200 for taxable year 2019 (section 3.25
of Rev. Proc. 2018-57, 2018-49 I.R.B.
827); and $4,300 for taxable year 2020
(section 3.25 of Rev. Proc. 2019-44, 2019-
47 I.R.B. 1093).
Section 1.152-3(c)(3) and (d)(2) of the
proposed regulations were proposed as
changes to an earlier notice of proposed
rulemaking (REG-137604-07) also pro-
viding rules regarding the definition of a
dependent under section 152, which was
published in the Federal Register (82 FR
6370) on January 19, 2017 (January 2017
Proposed Regulations). Section 1.152-
3(d)(2) of the January 2017 Proposed
Regulations, which have not yet been fi-
nalized, originally included references to
sections 71 and 682. Accordingly, the pro-
posed regulations withdrew §1.152-3(d)
(2) of the January 2017 Proposed Reg-
ulations and replaced it with a proposed
rule to reflect the amendments to section
152(d)(5) discussed in part II of this Back-
ground.
Summary of Comments and
Explanation of Provisions
The Treasury Department and the IRS
received three comments in response to
the proposed regulations through the Fed-
eral eRulemaking Portal. As no request for
a public hearing was received, no hearing
was held.
Although two of the comments received
did not relate to the proposed regulations,
the third comment generally asked for ad-
ditional clarity regarding the definition of
a qualifying relative. As described in the
Background, these regulations implement
specific changes to the law enacted in the
TCJA, which did not modify the definition
of qualifying relative in section 152(d)
other than to make conforming changes to
section 152(d)(5) to account for the repeal
of sections 71 and 682. When the January
2017 Proposed Regulations are finalized,
they will provide additional clarity to the
regulations under section 152 and related
provisions.
The third comment also suggested
that, because the final regulations would
not be published earlier than 2020, it
was not necessary to reference the ex-
emption amount for purposes of section
152 for taxable years 2018 and 2019.
Although these final regulations are be-
ing published in 2020, §1.152-2(e) of
these final regulations applies to taxable
years ending after August 28, 2018, the
date the Treasury Department and the
IRS issued Notice 2018-70, pursuant to
section 7805(b)(1)(C). Further, the Trea-
sury Department and the IRS determined
it appropriate to clarify that, in defining
qualifying relative for purposes other
than determining the amount allowable
as a deduction under section 151(a), the
exemption amount is not zero, but is the
inflation-adjusted section 152(d)(1)(B)
exemption amount in the annual revenue
procedure setting forth inflation-adjust-
ed items that is published in the Internal
Revenue Bulletin.
This document adopts the proposed
regulations as final regulations with no
substantive change. However, because
§1.152-3(c)(3) and 1.152-3(d)(2) of the
proposed regulations originally were
proposed as changes to provisions of
the January 2017 Proposed Regulations,
which have not yet been finalized, the
proposed regulations have been redesig-
nated in the final regulations to coordi-
nate with the existing regulations. Specif-
ically, proposed §1.152-3(c)(3)(i) and (ii)
is finalized as new §1.152-2(e)(1) and (2)
and proposed §1.152-3(d)(2) is finalized
as §1.152-2(b). When the January 2017
Proposed Regulations are finalized, the
provisions again will be appropriately
redesignated.
Therefore, the provisions of the pro-
posed regulations are adopted without
substantive change to: (1) provide that
the exemption amount, for purposes oth-
er than a deduction for a personal or de-
pendency exemption under section 151,
is $4,150 for taxable year 2018, and for
taxable years 2019 through 2025, the ex-
emption amount, as adjusted for inflation,
is the section 152(d)(1)(B) exemption
amount, as set forth in guidance published
in the Internal Revenue Bulletin; and
(2) describe certain payments to a payee
spouse for purposes of the support test
without references to repealed sections 71
and 682.
Finally, these regulations clarify an
issue raised regarding a statutory cross
reference in section 24(h)(4) to “a qualify-
ing child described in subsection (c).” As
was proposed in the proposed regulations,
these regulations clarify in §1.24-1 that
the statutory cross reference is a reference
to section 24(c), rather than to section
152(c).

November 2, 2020 978 Bulletin No. 2020–45
Applicability Date
Section 7805(b)(1) of the Code gen-
erally provides that no temporary, pro-
posed, or final regulation relating to the
internal revenue laws may apply to any
taxable period ending before the earliest
of (A) the date on which the regulation
is filed with the Federal Register, or
(B) in the case of a final regulation, the
date on which a proposed or temporary
regulation to which the final regulation
relates was filed with the Federal Reg-
ister. However, section 7805(b)(1)(C)
provides that a regulation may apply to
a taxable period ending after the date on
which any notice substantially describing
the expected contents of a regulation is
issued to the public.
Accordingly, §§1.24-1 and 1.152-
2(b) of these regulations apply to taxable
years beginning on or after October 13,
2020. Section 1.152-2(e) of these regula-
tions applies to taxable years ending after
August 28, 2018, the date the Treasury
Department and the IRS issued Notice
2018-70.
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 the
review of tax regulations.
Pursuant to the Regulatory Flexibili-
ty Act (5 U.S.C. chapter 6), it is certified
that these regulations will not have a sig-
nificant economic impact on a substan-
tial number of small entities. These reg-
ulations primarily affect individuals and
therefore will not have a significant eco-
nomic impact on a substantial number of
small entities. Accordingly, the Secretary
of the Treasury’s delegate certifies that the
rule will not have a significant economic
impact on a substantial number of small
entities.
Pursuant to section 7805(f), the pro-
posed regulations preceding these regula-
tions were submitted to the Office of the
Chief Counsel for the Office of Advocacy
of the Small Business Administration for
comment on its impact on small business,
and no comments were received.
Drafting Information
The principal author of the final regu-
lations is Victoria Driscoll of the Office
of Associate Chief Counsel (Income Tax
and Accounting). However, other per-
sonnel from the Treasury Department
and the IRS participated in their devel-
opment.
Statement of Availability of IRS
Documents
IRS notices and other guidance cited
in this preamble are published in the In-
ternal Revenue Bulletin (or Cumulative
Bulletin) and are available from the Su-
perintendent of Documents, U.S. Govern-
ment Publishing Office, Washington, DC
20402, or by visiting the IRS website at
http://www.irs.gov.
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 continues to read, in part, as fol-
lows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.24-1 is added to read
as follows:
§1.24-1 Partial credit allowed for certain
other dependents.
(a) In general. For purposes of section
24(h)(4)(A), a taxpayer may be eligible to
increase the credit determined under sec-
tion 24(a) by $500 for a dependent of the
taxpayer, as defined in section 152, other
than a qualifying child described in sec-
tion 24(c).
(b) Applicability date. This section ap-
plies to taxable years beginning on or after
October 13, 2020.
Par. 3. Section 1.152-2, is amended by:
1. Revising paragraph (b); and
2. Adding paragraph (e).
The revision and addition read as fol-
lows:
§1.152-2 Rules relating to general
definition of dependent.
* * * * *
(b)(1) A payment to a spouse (payee
spouse) of alimony or separate mainte-
nance is not treated as a payment by the
payor spouse for the support of any depen-
dent. Similarly, the distribution of income
of an estate or trust to a divorced or le-
gally separated payee spouse is not treated
as a payment by the payor spouse for the
support of any dependent. The preceding
sentence will not apply, however, to the
extent that such a distribution is in satis-
faction of the amount or portion of income
that, by the terms of a divorce decree, a
written separation agreement, or the trust
instrument is fixed as payable for the sup-
port of the minor children of the payor
spouse.
(2) Paragraph (b)(1) of this section ap-
plies to taxable years beginning on or after
October 13, 2020.
* * * * *
(e)(1) In defining a qualifying rela-
tive for taxable year 2018, the exemption
amount in section 152(d)(1)(B) is $4,150.
For taxable years 2019 through 2025, the
exemption amount, as adjusted for infla-
tion, is set forth in annual guidance pub-
lished in the Internal Revenue Bulletin.
See §601.601(d)(2) of this chapter.
(2) Paragraph (e)(1) of this section ap-
plies to taxable years ending after August
28, 2018.
Sunita Lough,
Deputy Commissioner for Services
and Enforcement
Approved: September 8, 2020
David J. Kautter
Assistant Secretary of the Treasury
(Tax Policy)
(Filed by the Office of the Federal Register on Oc-
tober 09, 2020, 8:45 a.m., and published in the issue
of the Federal Register for October 13, 2020, 85 F.R.
64386)

Bulletin No. 2020–45 979 November 2, 2020
26 CFR 1.67-4; 26 CFR 1.642(h)-2
T.D. 9918
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1
Effect of Section 67(g) on
Trusts and Estates
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains
final regulations clarifying that the fol-
lowing deductions allowed to an estate or
non-grantor trust are not miscellaneous
itemized deductions: costs paid or incurred
in connection with the administration of an
estate or non-grantor trust that would not
have been incurred if the property were not
held in the estate or trust, the personal ex-
emption of an estate or non-grantor trust,
the distribution deduction for trusts distrib-
uting current income, and the distribution
deduction for estates and trusts accumu-
lating income. Therefore, these deductions
are not affected by the suspension of the
deductibility of miscellaneous itemized de-
ductions for taxable years beginning after
December 31, 2017, and before January
1, 2026. The final regulations also provide
guidance on determining the character,
amount, and allocation of deductions in
excess of gross income succeeded to by a
beneficiary on the termination of an estate
or non-grantor trust. The final regulations
affect estates, non-grantor trusts (including
the S portion of an electing small business
trust), and their beneficiaries.
DATES: Effective date: These regulations
are effective on October 19, 2020.
Applicability dates: For dates of applica-
bility, see §§ 1.67–4(d), 1.642(h)–2(f) and
1.642(h)-5(c).
FOR FURTHER INFORMATION
CONTACT: Margaret Burow at (202)
317–5279 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains amendments
to Income Tax Regulations (26 CFR
part 1) under sections 67 and 642 of the
Internal Revenue Code (Code). On May
11, 2020, the Department of Treasury
(Treasury Department) and the IRS pub-
lished a notice of proposed rulemaking
(REG-113295-18) in the Federal Regis-
ter (85 FR 27693) containing proposed
regulations under sections 67 and 642(h)
(proposed regulations). The Summary of
Comments and Explanation of Revisions
section of this preamble summarizes the
provisions of sections 67 and 642(h)
and the provisions of the proposed reg-
ulations, which are explained in greater
detail in the preamble to the proposed
regulations.
On July 17, 2020, the Treasury De-
partment and the IRS published in the
Federal Register (85 FR 43512) a notice
of public hearing on the proposed regu-
lations scheduled for August 12, 2020.
The Treasury Department and the IRS re-
ceived no requests to speak at a hearing
in response to that notice. On August 5,
2020, the Treasury Department and the
IRS published in the Federal Register
(85 FR 47323) a cancellation of the notice
of public hearing.
The Treasury Department and the IRS
received written and electronic comments
in response to the proposed regulations.
All comments were considered and are
available at www.regulations.gov or upon
request. After full consideration of the
comments received, this Treasury deci-
sion adopts the proposed regulations with
modifications described in the Summary
of Comments and Explanation of Revi-
sions.
Summary of Comments and
Explanation of Revisions
Most of the comments addressing the
proposed regulations are summarized in
this Summary of Comments and Expla-
nation of Revisions. Comments merely
summarizing or interpreting the proposed
regulations or recommending statutory
revisions are not discussed in this pre-
amble. The Treasury Department and the
IRS continue to study comments on issues
related to sections 67 and 642(h) that are
beyond the scope of these regulations,
which may be discussed in future guid-
ance if guidance on those issues is pub-
lished. The scope of the proposed regula-
tions and these regulations is limited to the
effect of section 67(g) on the deductibility
of certain expenses described in section
67(b) and (e) that are incurred by estates
and non-grantor trusts and the treatment
of excess deductions on termination of an
estate or trust under section 642(h). This
Summary of Comments and Explanation
of Revisions also describes each of the fi-
nal rules contained in this document.
A. Section 67
Section 67(g) was added to the Code on
December 22, 2017, by section 11045(a)
of Public Law 115–97, 131 Stat. 2054,
2088 (2017), commonly referred to as the
Tax Cuts and Jobs Act (TCJA). Section
67(g) prohibits individual taxpayers from
claiming miscellaneous itemized deduc-
tions for any taxable year beginning after
December 31, 2017, and before January
1, 2026. Prior to the TCJA, miscellaneous
itemized deductions were allowable for
any taxable year only to the extent that
the sum of such deductions exceeded two
percent of adjusted gross income. See sec-
tion 67(a). Section 67(b) defines miscella-
neous itemized deductions as itemized de-
ductions other than those listed in section
67(b)(1) through (12).
Section 67(e) provides that, for pur-
poses of section 67, an estate or trust
computes its adjusted gross income in the
same manner as that of an individual, ex-
cept that the following additional deduc-
tions are treated as allowable in arriving
at adjusted gross income: (1) the deduc-
tions for costs which are paid or incurred
in connection with the administration of
the estate or trust and which would not
have been incurred if the property were
not held in such estate or trust, and (2) de-
ductions allowable under section 642(b)
(concerning the personal exemption of
an estate or non-grantor trust), section
651 (concerning the deduction for trusts
distributing current income), and section
661 (concerning the deduction for es-
tates and trusts accumulating income).
Accordingly, section 67(e) removes the

November 2, 2020 980 Bulletin No. 2020–45
deductions described in section 67(e)
(1) and (2) from the definition of item-
ized deductions under section 63(d), and
thus from the definition of miscellaneous
itemized deductions under section 67(b),
and treats them as deductions allowable
in arriving at adjusted gross income un-
der section 62(a). Section 67(e) further
provides regulatory authority to make ap-
propriate adjustments in the application
of part I of subchapter J of chapter 1 of
the Code to take into account the provi-
sions of section 67.
The proposed regulations under §
1.67-4 clarify that expenses described in
section 67(e) remain deductible in deter-
mining the adjusted gross income of an
estate or non-grantor trust during the tax-
able years in which section 67(g) applies.
Accordingly, section 67(g) does not deny
an estate or non-grantor trust (including
the S portion of an electing small business
trust) a deduction for expenses described
in section 67(e)(1) and (2) because such
deductions are allowable in arriving at
adjusted gross income and are not miscel-
laneous itemized deductions under sec-
tion 67(b). Commenters agreed with the
proposed amendments. These regulations
adopt the proposed regulations under §
1.67-4 without modification.
Two commenters requested that the
regulations address the treatment of de-
ductions described in section 67(e)(1) and
(2) in determining an estate or non-grant-
or trust’s income for alternative minimum
tax (AMT) purposes. The commenters
suggested that such deductions are allow-
able as deductible in computing the AMT.
The treatment of deductions described in
section 67(e) for purposes of determining
the AMT is outside the scope of these reg-
ulations concerning the effects of section
67(g); therefore, these regulations do not
address the AMT. Further, no conclusions
should be drawn from the absence of a dis-
cussion of the AMT in these regulations
regarding the treatment of deductions de-
scribed in section 67(e) for purposes of
determining the AMT.
One commenter suggested that the
Treasury Department and the IRS exer-
cise their regulatory authority under sec-
tion 67(e) to exempt cemetery trusts under
section 642(i) and qualified funeral trusts
(QFTs) under section 685 from the appli-
cation of section 67(g). The commenter
stated that the primary type of expense in-
curred by these trusts is investment advi-
sory expenses, the tax treatment of which
differs under the Code from management
expenses. That is, trust management ex-
penses generally are allowable in comput-
ing adjusted gross income under section
67(e)(1), while trust investment advisory
expenses are miscellaneous itemized de-
ductions. See § 1.67-4(b)(4). The com-
menter asserted that it was not the intent
of Congress to disallow investment advi-
sory expenses incurred by cemetery and
funeral trusts when Congress enacted sec-
tion 67(g).
The commenter suggested that ex-
ercising the regulatory authority under
section 67(e) in this manner would be
consistent with the exercise of regulatory
authority under section 1411 to exempt
section 642(i) cemetery perpetual care
funds and QFTs. See § 1.1411-3(b)(1)
(providing that certain types of trusts,
including section 642(i) cemetery per-
petual care funds, are excepted from the
net investment income tax) and § 1.1411-
3(b)(2) (providing a special rule for QFTs
that, for purposes of calculating any tax
under section 1411, section 1411 and
the regulations thereunder are applied to
each QFT by treating each beneficiary’s
interest in the trust as a separate trust). As
stated in the preamble to TD 9644 (78 FR
72393), the Treasury Department and the
IRS exercised their regulatory authority
under section 1411 to exclude cemetery
trusts from the net investment income tax
because, by benefiting an operating com-
pany, such trusts are considered similar
to the business trusts that are excluded
from the operation of section 1411. The
preamble also states that QFTs are not
excluded from the application of the net
income investment tax, but that the sec-
tion 1411 tax is calculated consistent with
the taxation of QFTs under chapter 1. The
commenter noted that they advocated for
the treatment of each beneficiary’s inter-
est in the QFT as a separate trust because
such treatment reduces the likelihood of
the QFT beneficiaries being subject to
the net investment income tax. The Trea-
sury Department and the IRS continue to
consider these comments but providing
an exemption for cemetery and funeral
trusts under section 67(g) is outside the
scope of these regulations.
B. Section 642(h)
1. In general
Section 642(h) provides that if, on the
termination of an estate or trust, the estate
or trust has: (1) a net operating loss car-
ryover under section 172 or a capital loss
carryover under section 1212, or (2) for
the last taxable year of the estate or trust,
deductions (other than the deductions al-
lowed under section 642(b) (relating to
the personal exemption) or section 642(c)
(relating to charitable contributions)) in
excess of gross income for such year, then
such carryover or excess will be allowed
as a deduction, in accordance with the reg-
ulations prescribed by the Secretary of the
Treasury or his delegate (Secretary), to the
beneficiaries succeeding to the property of
the estate or trust.
Section 1.642(h)-2(a), as articulated in
the proposed regulations and these final
regulations, provides that if, on termina-
tion of an estate or trust, the estate or trust
has for its last taxable year deductions
(other than the deductions allowed under
section 642(b) or section 642(c)) in excess
of gross income, the excess deductions are
allowed under section 642(h)(2) as items
of deduction to the beneficiaries succeed-
ing to the property of the terminated estate
or trust.
2. Character and amount of excess
deductions
Section 1.642(h)-2(b)(1) of the pro-
posed regulations provides that each
deduction comprising the excess deduc-
tions under section 642(h)(2) retains, in
the hands of the beneficiary, its character
(specifically, as allowable in arriving at
adjusted gross income, as a non-miscella-
neous itemized deduction, or as a miscel-
laneous itemized deduction) while in the
estate or trust. The character of these de-
ductions does not change when succeeded
to by a beneficiary on termination of the
estate or trust. Furthermore, an item of de-
duction succeeded to by a beneficiary re-
mains subject to any limitation applicable
under the Code in the computation of the
beneficiary’s tax liability.
One commenter noted that section
642(h) states that excess deductions on ter-
mination of an estate or trust are to be “al-

Bulletin No. 2020–45 981 November 2, 2020
lowed as a deduction, in accordance with
regulations prescribed by the Secretary”
and that there is no express authority to
treat excess deductions as miscellaneous
or non-miscellaneous itemized deductions
(or tax preference items for AMT purpos-
es). The Treasury Department and the IRS
disagree with this comment. The charac-
terization of these excess deductions as a
single miscellaneous itemized deduction
in the current regulations was made be-
fore the enactment of section 67(g) and
served as an administrative convenience.
Making a change to that characterization
is now appropriate to reflect the temporary
disallowance of miscellaneous itemized
deductions under section 67(g) since the
regulations were written and is a proper
exercise of the Secretary’s specific grant
of regulatory authority in section 642(h).
Another commenter requested that
non-miscellaneous itemized deductions
included in excess deductions be fully de-
ductible by the beneficiary and not subject
to a second level of limitation applicable
on the beneficiary’s return, because the
amounts already would have been subject
to limitation on the return of the estate or
trust. The commenter provided an exam-
ple of a terminated trust that paid $25,000
of state income tax, for which the trust is
limited to a $10,000 deduction under sec-
tion 164(b)(6)(B) for taxable years begin-
ning after December 31, 2017, and before
January 1, 2026. In the commenter’s ex-
ample, the entire amount of the allowable
$10,000 deduction was passed through
to the beneficiary as an excess deduction
on termination of the trust. The excess of
state income tax over the $10,000 limita-
tion ($15,000) would not pass through as
an excess deduction to the beneficiaries
in this circumstance because the excess
amount was not deductible to the trust. Ex-
cess state income tax on termination of the
estate or trust may, however, pass through
to a beneficiary if the estate or trust had
insufficient income to absorb the entire
$10,000 of state income tax deduction. In
that circumstance, the commenter opined
that the limitation under section 164(b)
(6)(B), having already been applied at the
trust level, should not again be applied at
the beneficiary level. The Treasury De-
partment and the IRS carefully considered
the comment but determined that benefi-
ciaries remain subject to the limitation in
section 164(b)(6)(B). The Treasury De-
partment and the IRS found no authority
to exempt such items from the application
of any limitations applicable to the bene-
ficiary under the Code. The excess deduc-
tions retain their character in the hands of
the beneficiary on termination of the trust,
and all applicable limitations apply to all
of the beneficiary’s items of that character,
regardless of their origin.
One commenter noted that, under §
1.641(c)-1(j), if an electing small business
trust (ESBT) election terminates or is re-
voked and the S portion has a net operat-
ing loss or capital loss carryover or deduc-
tions in excess of gross income, then any
such loss, carryover or excess deductions
are allowed as a deduction, in accordance
with the regulations under section 642(h),
to the trust or to the beneficiaries succeed-
ing to the property of the trust if the entire
trust terminates. However, the commenter
also noted that under the TCJA, section
641(c)(2)(E) was amended to provide that
ESBT charitable contributions are deduct-
ible under section 170, rather than under
section 642(c), so that, unlike other trust
charitable deductions, an ESBT’s charita-
ble deduction could constitute part of the
excess deductions on termination of the
trust. The commenter stated that neither
the legislative history nor the explanation
of the staff of the Joint Committee on Tax-
ation addressed whether this result was
intended. The Treasury Department and
the IRS note that charitable contribution
deductions under both sections 170 and
642(c) are non-miscellaneous itemized
deductions under sections 63(d) and 67(b)
(4) to the estate or trust and maintain that
such character is retained in the hands of
the beneficiary in these regulations. Al-
though the Treasury Department and the
IRS continue to consider the application
of section 170 to ESBT charitable contri-
butions under section 641(c)(2)(E), this
issue is outside the scope of these regu-
lations.
Another commenter requested clarifi-
cation of whether an excess deduction on
termination of a trust or estate that is al-
lowed in determining the net investment
income under section 1411 of the estate
or trust remains deductible in the hands
of the beneficiary in determining the net
investment income of the beneficiary
under section 1411. These final regula-
tions provide that each excess deduction
retains its separate character as a sec-
tion 67(e) deduction, non-miscellaneous
itemized deduction, or miscellaneous
itemized deduction in the hands of the
beneficiary. Whether a deduction retains
its character as allowable in computing
the net investment income of the bene-
ficiary, however, is outside the scope of
these regulations.
3. Reporting of excess deductions
Section 1.642(h)-2(b)(1) of the pro-
posed regulations provides that an item of
deduction succeeded to by a beneficiary
remains subject to any additional applica-
ble limitation under the Code and must be
separately stated if it could be so limited,
as provided in the instructions to Form
1041, U.S. Income Tax Return for Estates
and Trusts, and the Schedule K-1 (Form
1041), Beneficiary’s Share of Income,
Deductions, Credit, etc. Commenters re-
quested that the Treasury Department
and the IRS provide guidance on how
the excess deductions are to be reported
by both the terminated estate or trust and
by its beneficiaries. The Treasury Depart-
ment and the IRS released instructions for
beneficiaries that chose to claim excess
deductions on Form 1040 in the 2019 or
2018 taxable year based on the proposed
regulations. In addition, the Treasury De-
partment and the IRS plan to update the
instructions for Form 1041, Schedule K-1
(Form 1041), and Form 1040, U.S. Indi-
vidual Income Tax Return, for the 2020
and subsequent tax years to provide for
the reporting of excess deductions that are
section 67(e) expenses or non-miscella-
neous itemized deductions.
The Treasury Department and the IRS
are aware that the income tax laws of
some U.S. states do not conform to the
Code with respect to section 67(g), such
that beneficiaries may need information
on miscellaneous itemized deductions of
a terminated estate or trust. However, be-
cause miscellaneous itemized deductions
are currently not allowed for Federal in-
come tax purposes, that information is not
needed for Federal income tax purposes.
Therefore, it would not be appropriate to
modify Federal income tax forms to re-
quire or accommodate the collection of
such information while this deduction is

November 2, 2020 982 Bulletin No. 2020–45
suspended. Estates, trusts, and beneficia-
ries are advised to consult the relevant
state taxing authority for information
about deducting miscellaneous itemized
expenses on their state tax returns.
4. Determinations of deductions in year
of termination of the estate or trust
Section 1.642(h)-2(b)(2) of the pro-
posed regulations provides that the provi-
sions of § 1.652(b)–3 are used to allocate
each item of deduction among the classes
of income in the year of termination for
purposes of determining the character and
amount of the excess deductions under sec-
tion 642(h)(2). Accordingly, the amount
of each separate deduction remaining af-
ter application of § 1.652(b)–3 compris-
es the excess deductions available to the
beneficiaries succeeding to the property of
the estate or trust as provided under sec-
tion 642(h)(2). In addition, as previously
explained, an item of deduction succeeded
to by a beneficiary remains subject to any
additional applicable limitation under the
Code. Furthermore, § 1.642(h)-2(c) of the
proposed regulations provides that excess
deductions are allowable only in the tax-
able year of the beneficiary in which or
with which the estate or trust terminates.
That is, excess deductions of a terminated
estate or trust may not carry over to a sub-
sequent year of the beneficiary.
One commenter requested that these
regulations provide an ordering rule clar-
ifying whether excess deductions on ter-
mination of an estate or trust allowed as
a deduction to the beneficiary are claimed
before, af ter, or ratably with the beneficia-
ry’s other deductions, particularly when
the amount of the excess deductions and
other deduc tions exceed the beneficiary’s
gross in come. These final regulations clar-
ify that beneficiaries may claim all or part
of the excess deductions under section
642(h)(2) before, after, or together with
the same character of deductions separate-
ly allowable to the beneficiary under the
Code.
That commenter also requested that the
final regulations include an exception for
investment interest expense under section
163(d) from the general rule that excess
deductions on termination of a trust or
estate may be claimed only in the benefi-
ciary’s taxable year during which the trust
or estate terminated. That section permits
the carryforward of investment interest
under section 163(d)(2) to the taxpayer’s
subsequent taxable years if the taxpayer
is unable to deduct the investment inter-
est in the current taxable year. The com-
menter stated that the disallowance of
the carryover of section 642(h)(2) excess
deductions should not apply to those ex-
cess deductions that are no longer treat-
ed as miscellaneous itemized deductions
under the proposed regulations, and that
carryover should be permitted to the ex-
tent otherwise permitted under the Code.
The preamble to the proposed regulations
states that addressing suspended deduc-
tions under section 163(d) is beyond the
scope of the regulations and the same is
true of these final regulations.
A commenter requested that the amount
of a beneficiary’s net operating loss carry-
over to a later taxable year under section
172 should include all of the beneficiary’s
section 642(h)(2) excess deductions that are
section 67(e) deductions, as deductions that
are attributable to the beneficiary’s trade or
business and thus deductions attributable
to a trade or business under section 172(d)
(4). Section 642(h) makes it clear that a net
operating loss carryover under paragraph
(1) of that section is separate and distinct
from the excess deductions on termination
described in paragraph (2) of that section.
Furthermore, § 1.642(h)-2(d) provides that
a deduction based upon a net operating loss
carryover generally will not be allowed to
beneficiaries under both paragraphs (1) and
(2) of section 642(h). Therefore, an excess
deduction allowable to the beneficiary un-
der section 642(h)(2) is not a net operating
loss carryover succeeded to by the benefi-
ciary under section 642(h)(1) and (with one
exception) a net operating loss carryover is
not an excess deduction on termination.
Moreover, these regulations provide that
it is the character of the excess deductions
as section 67(e) deductions, non-miscel-
laneous itemized deductions, and miscel-
laneous itemized deductions, and not the
character of a deduction as attributable to
a trade or business, that is retained in the
hands of the beneficiary. Thus, whether
section 642(h)(2) excess deductions that
are section 67(e) deductions may be in-
cluded in a beneficiary’s net operating loss
carryovers under section 172, separate
from those it succeeds to from a terminated
estate or trust, is beyond the scope of these
regulations. Because § 1.642(h)-2(a) is
clear that excess deductions on termination
of an estate or trust are not carried over to
future years and that such deductions are
separate from a net operating loss carry-
over from the estate or trust, the Treasury
Department and the IRS do not adopt this
comment.
5. Example 1
Section 1.642(h)-5(a), Example 1, of
the proposed regulations (Example 1)
updates an existing example illustrat-
ing computations under section 642(h)
when there is a net operating loss. Section
1.642-5(a)(2)(ii) of Example 1 explains
that the beneficiaries of the estate cannot
carry back any of the net operating loss
of the termi nating estate that was made
available to them under section 642(h)(1).
Two commenters requested that Ex-
ample 1 be revised to take into account
the amendments to section 172(b)(1)(D)
under sec. 2302(b) of the Coronavirus
Aid, Relief, and Economic Security Act,
Public Law 116-136, 134 Stat. 281 (2020)
(CARES Act), by allowing a beneficiary to
carry back the net operating loss carryover
the beneficiary succeeds to under section
642(h)(1) for net operating losses arising
in taxable years beginning after Decem-
ber 31, 2017, and before January 1, 2021.
Under section 2303 of the CARES Act, net
operating losses arising in taxable years
beginning after December 31, 2017, and
before January 1, 2021, generally may be
carried back five years before being carried
forward. One of these commenters further
requested confirmation that a beneficiary
is allowed a carryback of the net operating
loss under section 642(h)(1) for net operat-
ing losses of an estate or trust arising in tax-
able years ending before January 1, 2018,
to the extent the beneficiary succeeds to a
net operating loss carryover attributable to
those net operating losses on a termination
of the estate or trust between January 1,
2018, and December 31, 2020.
Unless otherwise provided under the
Code, a net operating loss incurred by a
taxpayer may only be used as a deduction
by that taxpayer and cannot be transferred
to another taxpayer for use by that other
taxpayer. Calvin v. U.S. 354 F.2d 202 (10th
Cir. 1965), Mellott v. U.S., 257 F.2d 798 (3d

Bulletin No. 2020–45 983 November 2, 2020
Cir. 1958). As an exception to this general
principle, section 642(h) provides that if, on
termination of an estate or trust, the estate
or trust has a net operating loss carryover
under section 172, then such carryover is
allowed as a deduction, in accordance with
the regulations prescribed by the Secretary,
to the beneficiaries succeeding to the prop-
erty of the estate or trust. Section 1.642(h)-
1(a) provides that if, on the termination of
an estate or trust, a net operating loss carry-
over under section 172 would be allowable
to the estate or trust in a taxable year subse-
quent to the taxable year of termination but
for the termination, a carryover is allowed
under section 642(h)(1) to the beneficiaries
succeeding to the property of the estate or
trust. In addition, § 1.642(h)-1(b) provides
that the first taxable year of the beneficiary
to which the net operating loss will be car-
ried over is the taxable year of the benefi-
ciary in which or with which the estate or
trust terminates.
Section 642(h)(1) provides a specific
rule that allows the beneficiary to succeed
to a net operating loss carryover of the es-
tate or trust and deduct the amount of the
net operating loss over the remaining car-
ryover period that would have been allow-
able to the estate or trust but for the termi-
nation of the estate or trust. The phrase in
section 642(h)(1) “the estate or trust has a
net operating loss carryover’” means that
the estate or trust incurred a net operating
loss and either already carried it back to
the earliest allowable year under section
172 or elected to waive the carryback pe-
riod under section 172(b)(3), and now is
limited to carrying over the remaining net
operating loss. Accordingly, because the
net operating loss is a carryover for the es-
tate or trust, the beneficiary succeeding to
that net operating loss may, under section
642(h)(1), only carry it forward.
The CARES Act amendments to sec-
tion 172(b) mentioned by the commenters
allow taxpayers a five-year carryback of
certain net operating losses incurred by that
taxpayer. The CARES Act amendments do
not change the result that a beneficiary suc-
ceeding to the net operating loss carryover
of a terminated estate or trust may only car-
ryover that net operating loss in the same
manner as the terminated estate or trust,
but for the termination. Consequently, the
Treasury Department and the IRS do not
adopt these comments and add a citation to
§ 1.642(h)-1 to reference the rule that a ben-
eficiary that succeeds to a net operating loss
carryover of a terminated estate or trust may
only carry forward the net operating loss.
6. Example 2
Section § 1.642(h)-5(b), Example 2,
of the proposed regulations (Example 2)
demonstrates computations under section
642(h)(2). The expenses in Example 2
include rental real estate taxes in an at-
tempt to illustrate a deduction subject to
limitation under section 164(b)(6) to the
beneficiary that must be separately stated
as provided in § 1.642(h)-2(b)(1).
Multiple commenters noted that Ex-
ample 2 raises several issues that could be
potentially relevant to that example, such
as whether the decedent was in a trade or
business and the application of section 469
to estates and trusts. To avoid these issues,
which are extraneous to the point being il-
lustrated, one commenter suggested that the
example be revised so that the entire amount
of real estate expenses on rental property
equals the amount of rental income. The
Treasury Department and the IRS did not
intend to raise such issues in the example
and consider both issues to be outside the
scope of these regulations. Accordingly, the
Treasury Department and the IRS adopt the
suggestion by the commenter and modify
Example 2 to avoid these issues by having
rental real estate expenses entirely offset
rental income with no unused deduction.
Commenters also noted that Example 2
does not properly allocate rental real estate
expenses because the example characteriz-
es the rental real estate taxes as itemized de-
ductions. These commenters asserted that
real estate taxes on property held for the
production of rental income are not item-
ized deductions but instead are allowed in
computing gross income and cited to sec-
tion 62(a)(4) as providing that ordinary and
necessary expenses paid or incurred during
the taxable year for the management, con-
servation, or maintenance of property held
for the production of income under section
212(2) that are attributable to property held
for the production of rents are deductible
as above-the-line deductions in arriving
at adjusted gross income. One commenter
suggested that, if the goal of Example 2 is
to illustrate state and local taxes passing
through to the beneficiary, then the exam-
ple should include state income taxes rather
than real estate taxes on rental real estate.
The Treasury Department and the IRS have
revised this example in the final regulations
to include personal property tax paid by the
trust rather than taxes attributable to rental
real estate.
Lastly, commenters noted that Example
2 does not demonstrate the broad range of
trustee discretion in § 1.652(b)-3(b) and
(d) for deductions that are not directly at-
tributable to a class of income, or deduc-
tions that are, but which exceed such class
of income, respectively. In response to
these comments, the Treasury Department
and the IRS have modified Example 2 to
illustrate the application of trustee discre-
tion as found in § 1.652(b)-3(b) and (d).
C. Applicability Dates
The proposed regulations provide that
the changes to §§ 1.67-4, 1.642(h)-2, and
1.642(h)-5 apply to taxable years begin-
ning after the date the regulations are
published as final. The preamble to the
proposed regulations explains that estates,
non-grantor trusts, and their beneficiaries
may rely on the proposed regulations un-
der section 67 for taxable years beginning
after December 31, 2017, and on or before
the date these regulations are published as
final. Taxpayers may also rely on the pro-
posed regulations under section 642(h) for
taxable years of beneficiaries beginning
after December 31, 2017, and on or before
the date the regulations are published as fi-
nal, in which an estate or trust terminates.
One commenter requested that §
1.642(h)-2 of the proposed regulations be
applied retroactively not only to taxable
years beginning after December 31, 2017,
but to all open years. The commenter as-
serted that the existing regulation treating
excess deductions on termination of an
estate or trust as a miscellaneous itemized
deduc tion was in error. As an example, the
commenter argues that the current regu-
lations mistakenly describe section 67(e)
expenses as an exception to the rules ap-
plicable to miscellaneous itemized deduc-
tions, and therefore requested that the final
regulations be applicable to all open years.
The Treasury Department and the IRS have
the authority to treat an excess deduction
on termination of an estate or trust as a sin-
gle miscellaneous itemized deduction. See

November 2, 2020 984 Bulletin No. 2020–45
section 642(h). The suspension under sec-
tion 67(g) of miscellaneous itemized de-
ductions caused the Treasury Department
and the IRS to reconsider the treatment of
excess deductions under section 642(h)(2)
because the Treasury Department and the
IRS do not interpret section 67(g) as sus-
pending such deductions allowable under
section 642(h)(2). The Treasury Depart-
ment and the IRS interpret section 67(g)
as not disallowing excess deductions suc-
ceeded to beneficiaries from terminated
estates and trusts under section 642(h)(2).
Therefore, taxpayers may rely on these reg-
ulations as of the effective date of section
67(g), but not for earlier periods.
The final regulations apply to taxable
years beginning after October 19, 2020.
Pursuant to section 7805(b)(7), taxpayers
may choose to apply the amendments to §
1.67-4 and §§ 1.642(h)-2 and 1.642(h)-5
set forth in this Treasury decision to tax-
able years beginning after December 31,
2017, and on or before October 19, 2020.
Special Analysis
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. Therefore, a reg-
ulatory impact assessment is not required.
Pursuant to the Regulatory Flexibility
Act (5 U.S.C. chapter 6), it is hereby cer-
tified that these regulations will not have a
significant economic impact on a substan-
tial number of small entities. This certifi-
cation is based on the fact that the amount
of time necessary to report the required
information will be minimal in that it re-
quires fiduciaries of estates and trusts to
provide on the Schedule K-1 (Form 1041)
issued to beneficiaries information that
is already maintained and reported to the
IRS on Form 1041. Moreover, it should
take an estate or trust no more than 2 hours
to satisfy the information requirement in
these regulations. Accordingly, the Secre-
tary certifies that the rule will not have a
significant economic impact on a substan-
tial number of small entities.
Pursuant to section 7805(f) of the Code,
the notice of proposed rulemaking that pre-
ceded these regulations was submitted to
the Chief Counsel for the Office of Advo-
cacy of the Small Business Administration
for comment on its impact on small busi-
nesses, and no comments were received.
Paperwork Reduction Act (PRA)
The collection of information related
to these regulations under section 642(h)
is reported on Schedule K–1 (Form
1041), Beneficiary’s Share of Income,
Deductions, Credits, etc., and has been
reviewed in accordance with the Paper-
work Reduction Act (44 U.S.C. 3507)
and approved by the Office of Manage-
ment and Budget under control number
1545–0092.
The collection of information in these
regulations is in § 1.642(h)–2(b)(1). The
IRS requires this information to ensure
that excess deductions on an estate’s or
trust’s termination that are subject to ad-
ditional applicable limitations retain their
character when taken into account by ben-
eficiaries on their returns. The respondents
will be estates, trusts, and their fiduciaries.
An agency may not conduct or sponsor,
and a person is not required to respond to, a
collection of information unless it displays a
valid control number assigned by the Office
of Management and Budget. Books or re-
cords relating to a collection of information
must be retained as long as their contents
may become material in the administration
of any internal revenue law. Generally, tax
returns and tax return information are confi-
dential, as required by section 6103.
Drafting Information
The principal author of these regula-
tions is Margaret Burow of the Office of
Associate Chief Counsel (Passthroughs
and Special Industries). Other personnel
from the Treasury Department and the
IRS, however, participated in their devel-
opment.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and record-
keeping requirements.
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 entries
for §§ 1.67–4, 1.642(h)–2, and 1.642(h)–
5 in numerical order to read in part as
follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.67–4 also issued under 26
U.S.C. 67(e).
* * * * *
Section 1.642(h)–2 also issued under
26 U.S.C. 642(h).
Section 1.642(h)–5 also issued under
26 U.S.C. 642(h).
* * * * *
Par. 2. Section 1.67–4 is amended by
revising paragraph (a) and the heading of
paragraph (d) and adding two sentences to
the end of paragraph (d) to read as follows:
§ 1.67–4 Costs paid or incurred by
estates or non-grantor trusts.
(a) Deductions—(1) Section 67(e) de-
ductions—(i) In general. An estate or trust
(including the S portion of an electing small
business trust) not described in § 1.67–2T(g)
(1)(i) (a non-grantor trust) must compute its
adjusted gross income in the same manner
as an individual, except that the following
deductions (section 67(e) deductions) are al-
lowed in arriving at adjusted gross income:
(A) Costs that are paid or incurred in
connection with the administration of the
estate or trust that would not have been
incurred if the property were not held in
such estate or trust; and
(B) Deductions allowable under sec-
tion 642(b) (relating to the personal ex-
emption) and sections 651 and 661 (relat-
ing to distributions).
(ii) Not disallowed under section 67(g).
Section 67(e) deductions are not itemized
deductions under section 63(d) and are not
miscellaneous itemized deductions under
section 67(b). Therefore, section 67(e) de-
ductions are not disallowed under section
67(g).
(2) Deductions subject to 2-percent
floor. A cost is not a section 67(e) deduc-
tion and thus is subject to both the 2-per-
cent floor in section 67(a) and section
67(g) to the extent that it is included in the
definition of miscellaneous itemized de-
ductions under section 67(b), is incurred
by an estate or non-grantor trust (includ-

Bulletin No. 2020–45 985 November 2, 2020
ing the S portion of an electing small busi-
ness trust), and commonly or customarily
would be incurred by a hypothetical indi-
vidual holding the same property.
* * * * *
(d) Applicability date. * * * Paragraph
(a) of this section applies to taxable years
beginning after October 19, 2020. Taxpay-
ers may choose to apply paragraph (a) of
this section to taxable years beginning af-
ter December 31, 2017, and on or before
October 19, 2020.
Par. 3. Section 1.642(h)–2 is amended
by:
1. Revising paragraph (a).
2. Redesignating paragraph (b) as para-
graph (d) and adding a heading for newly
redesignated paragraph (d).
3. Redesignating paragraph (c) as para-
graph (e) and adding a heading for newly
redesignated paragraph (e).
4. Adding new paragraphs (b) and (c)
and paragraph (f).
The revisions and additions read as fol-
lows:
§ 1.642(h)–2 Excess deductions on
termination of an estate or trust.
(a) Excess deductions—(1) In general.
If, on the termination of an estate or trust,
the estate or trust has for its last taxable year
deductions (other than the deductions al-
lowed under section 642(b) (relating to the
personal exemption) or section 642(c) (re-
lating to charitable contributions)) in excess
of gross income, the excess deductions as
determined under paragraph (b) of this sec-
tion are allowed under section 642(h)(2) as
items of deduction to the beneficiaries suc-
ceeding to the property of the estate or trust.
(2) Treatment by beneficiary. A benefi-
ciary may claim all or part of the amount of
the deductions provided for in paragraph (a)
of this section, as determined after applica-
tion of paragraph (b) of this section, before,
after, or together with the same character of
deductions separately allowable to the ben-
eficiary under the Internal Revenue Code
for the beneficiary’s taxable year during
which the estate or trust terminated as pro-
vided in paragraph (c) of this section.
(b) Character and amount of excess
deductions—(1) Character. The character
and amount of the excess deductions on
termination of an estate or trust will be de-
termined as provided in this paragraph (b).
Each deduction comprising the excess de-
ductions under section 642(h)(2) retains,
in the hands of the beneficiary, its charac-
ter (specifically, as allowable in arriving at
adjusted gross income, as a non-miscella-
neous itemized deduction, or as a miscel-
laneous itemized deduction) while in the
estate or trust. An item of deduction suc-
ceeded to by a beneficiary remains subject
to any additional applicable limitation un-
der the Internal Revenue Code and must
be separately stated if it could be so limit-
ed, as provided in the instructions to Form
1041, U.S. Income Tax Return for Estates
and Trusts, and the Schedule K–1 (Form
1041), Beneficiary’s Share of Income, De-
ductions, Credit, etc., or successor forms.
(2) Amount. The amount of the excess
deductions in the final year is determined
as follows:
(i) Each deduction directly attributable to
a class of income is allocated in accordance
with the provisions in § 1.652(b)–3(a);
(ii) To the extent of any remaining in-
come after application of paragraph (b)(2)
(i) of this section, deductions are allocat-
ed in accordance with the provisions in §
1.652(b)–3(b) and (d); and
(iii) Deductions remaining after the ap-
plication of paragraph (b)(2)(i) and (ii) of
this section comprise the excess deductions
on termination of the estate or trust. These
deductions are allocated to the beneficiaries
succeeding to the property of the estate or
trust in accordance with § 1.642(h)–4.
(c) Year of termination—(1) In general.
The deductions provided for in paragraph
(a) of this section are allowable only in the
taxable year of the beneficiary in which or
with which the estate or trust terminates,
whether the year of termination of the es-
tate or trust is of normal duration or is a
short taxable year.
(2) Example. Assume that a trust dis-
tributes all its assets to B and terminates on
December 31, Year X. As of that date, it has
excess deductions of $18,000, all charac-
terized as allowable in arriving at adjusted
gross income under section 67(e). B, who
reports on the calendar year basis, could
claim the $18,000 as a deduction allowable
in arriving at B’s adjusted gross income for
Year X. However, if the deduction (when
added to other allowable deductions that B
claims for the year) exceeds B’s gross in-
come, the excess may not be carried over
to any year subsequent to Year X.
(d) Net operating loss carryovers. * * *
(e) Items included in net operating loss
or capital loss carryovers. * * *
(f) Applicability date. Paragraphs (a)
through (c) of this section apply to taxable
years beginning after October 19, 2020. The
rules applicable to taxable years beginning
on or before October 19, 2020, are contained
in § 1.642(h)-2 as in effect prior to October
19, 2020 (see 26 CFR part 1 revised as of
April 1, 2020). Taxpayers may choose to ap-
ply paragraphs (a) through (c) of this section
to taxable years beginning after December
31, 2017, and on or before October 19, 2020.
Par. 4. Section 1.642(h)–5 is revised to
read as follows:
§ 1.642(h)–5 Examples.
Paragraphs (a) and (b) of this section
(Examples 1 and 2) illustrate the applica-
tion of section 642(h).
(a) Example 1: Computations under
section 642(h) when an estate has a net
operating loss—(1) Facts. On January 31,
2020, A dies leaving a will that provides
for the distribution of all of A’s estate
equally to B and an existing trust for C.
The period of administration of the es-
tate terminates on December 31, 2020, at
which time all the property of the estate
is distributed to B and the trust. For tax
purposes, B and the trust report income on
a calendar year basis. During the period of
administration, the estate has the follow-
ing items of income and deductions:
Table 1 To ParagraPh (a)(1)
Income
Taxable interest .......................................................................................... $2,500
Business income .......................................................................................... 3,000
Total income ..................................................................................................................... 5,500

November 2, 2020 986 Bulletin No. 2020–45
Table 2 To ParagraPh (a)(1)
Deductions
Business expenses (including administrative expense allocable to business income) .................. 5,000
Administrative expenses not allocable to business
income that would not have been incurred if property
had not been held in a trust or estate (section 67(e) deductions) .......................................... 9,800
Total deductions .................................................................................................................... 14,800
(2) Computation of net operating loss. (i) The amount of the net operating loss carryover is computed as follows:
Table 3 To ParagraPh (a)(2)(i)
Gross income .............................................................................................. $5,500
Total deductions ................................................................. 14,800
Less adjustment under section 172(d)(4)
(allowable non-business expenses ($9,800)
limited to non-business income ($2,500)) ........................... 7,300
Deductions as adjusted ................................................................................... 7,500
Net operating loss ..................................................................................................................... 2,000
(ii) Under section 642(h)(1), B and
the trust are each allocated $1,000 of the
$2,000 unused net operating loss carry-
over of the terminated estate in 2020, with
the allowance of any net operating loss
carryover to B and the trust determined
under section 172. Neither B nor the trust
can carry back any of the net operating
loss of A’s estate made available to them
under section 642(h)(1). See § 1.642(h)-
1(b).
(3) Section 642(h)(2) excess deduc-
tions. The $7,300 of non-business deduc-
tions not taken into account in determin-
ing the net operating loss of the estate are
excess deductions on termination of the
estate under section 642(h)(2). Under §
1.642(h)–2(b)(1), such deductions re-
tain their character as section 67(e) de-
ductions. Under § 1.642(h)–4, B and the
trust each are allocated $3,650 of excess
deductions based on B’s and the trust’s
respective shares of the burden of each
cost.
(4) Consequences for C. The net oper-
ating loss carryover and excess deductions
are not allowable directly to C, the trust
beneficiary. To the extent the distributable
net income of the trust is reduced by the
net operating loss carryover and excess
deductions, however, C may receive an
indirect benefit from the carryover and ex-
cess deductions.
(b) Example 2: Computations under
section 642(h)(2)—(1) Facts. D dies in
2019 leaving an estate of which the resid-
uary legatees are E (75%) and F (25%).
The estate’s income and deductions in its
final year are as follows:
Table 4 To ParagraPh (b)(1)
Income
Dividends ............................................................................................. $3,000
Taxable Interest .......................................................................................... 500
Rent ..................................................................................................... 2,000
Capital Gain ........................................................................................... 1,000
Total Income ........................................................................................................... 6,500

Bulletin No. 2020–45 987 November 2, 2020
Table 5 To ParagraPh (b)(1)
Deductions
Section 62(a)(4) deductions:
Rental real estate expenses ............................................................... 2,000
Section 67(e) deductions:
Probate fees .................................................................. 1,500
Estate tax preparation fees ................................................. 8,000
Legal fees ..................................................................... 2,500
Total Section 67(e) deductions ....................................................12,000
Non-miscellaneous itemized deductions:
Personal property taxes .................................................................... 3,500
Total deductions ..................................................................................... 17,500
(2) Determination of character. Pur-
suant to § 1.642(h)–2(b)(2), the character
and amount of the excess deductions is
determined by allocating the deductions
among the estate’s items of income as
provided under § 1.652(b)–3. Under
§ 1.652(b)–3(a), the $2,000 of rental
real estate expenses is allocated to the
$2,000 of rental income. In the exercise
of the executor’s discretion pursuant to
§ 1.652(b)–3(b), D’s executor allocates
$3,500 of personal property taxes and
$1,000 of section 67(e) deductions to the
remaining income. As a result, the excess
deductions on termination of the estate
are $11,000, all consisting of section
67(e) deductions.
(3) Allocations among beneficiaries.
Pursuant to § 1.642(h)–4, the excess
deductions are allocated in accordance
with E’s (75 percent) and F’s (25 per-
cent) interests in the residuary estate. E’s
share of the excess deductions is $8,250,
all consisting of section 67(e) deduc-
tions. F’s share of the excess deductions
is $2,750, also all consisting of section
67(e) deductions.
(4) Separate statement. If the executor
instead allocated $4,500 of section 67(e)
deductions to the remaining income of
the estate, the excess deductions on ter-
mination of the estate would be $11,000,
consisting of $7,500 of section 67(e) de-
ductions and $3,500 of personal property
taxes. The non-miscellaneous itemized
deduction for personal property taxes may
be subject to limitation on the returns of
both B and C’s trust under section 164(b)
(6)(B) and would have to be separately
stated as provided in § 1.642(h)–2(b)(1).
(c) Applicability date. This section is
applicable to taxable years beginning after
October 19, 2020. Taxpayers may choose
to apply this section to taxable years be-
ginning after December 31, 2017, and on
or before October 19, 2020.
Sunita Lough,
Deputy Commissioner for Services
and Enforcement.
Approved: September 16, 2020.
David J. Kautter,
Assistant Secretary of the Treasury
(Tax Policy).
(Filed by the Office of the Federal Register on Oc-
tober 16, 2020, 8:45 a.m., and published in the issue
of the Federal Register for October 19, 2020, 85 F.R.
66219)

November 2, 2020 988 Bulletin No. 2020–45
Part III
Update for Weighted
Average Interest Rates,
Yield Curves, and Segment
Rates
Notice 2020-77
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 September
2020 data is in Table 2020-9 at the end
of this notice. The spot first, second, and
third segment rates for the month of Sep-
tember 2020 are, respectively, 0.51, 2.31,
and 3.15.
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 October
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
October 2020 2.11 3.30 3.86
Based on § 430(h)(2)(C)(iv), the
24-month averages applicable for October
2020, adjusted to be within the applicable
minimum and maximum percentages of
the corresponding 25-year average seg-
ment rates, are as follows:
Adjusted 24-Month Average Segment Rates
For Plan Years
Beginning In
Applicable
Month
First
Segment
Second
Segment
Third
Segment
2019October 20203.745.356.11
2020October 20203.645.215.94
2021October 20203.324.795.47
30-YEAR TREASURY SECURITIES
INTEREST RATES
Section 431 specifies the minimum
funding requirements that apply to multi-
employer plans pursuant to § 412. Section
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) pro-
vides that the interest rate used to calculate
current liability for this purpose must be
1
Pursuant to § 433(h)(3)(A), the 3
rd
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. 2020–45 989 November 2, 2020
no more than 5 percent above and no more
than 10 percent below the weighted aver-
age of the rates of interest on 30-year Trea-
sury securities during the four-year period
ending on the last day before the beginning
of the plan year. 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 September 2020 is 1.42 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. For plan years beginning in October
2020, the weighted average of the rates of
interest on 30-year Treasury securities and
the permissible range of rates used to cal-
culate current liability are as follows:
Treasury Weighted Average Rates
For Plan Years
Beginning In
30-Year Treasury
Weighted Average
Permissible Range
90% to 105%
October 20202.432.19 to 2.55
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 September
2020 are as follows:
Minimum Present Value Segment Rates
Month First Segment Second Segment Third Segment
September 2020 0.51 2.31 3.15
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).

November 2, 2020 990 Bulletin No. 2020–45
Table 2020-9
Monthly Yield Curve for September 2020
Derived from September 2020 Data
MaturityYieldMaturityYieldMaturityYieldMaturityYieldMaturityYield
0.50.1620.52.9740.53.1860.53.2580.53.29
1.00.2821.02.9841.03.1861.03.2681.03.30
1.50.3921.52.9941.53.1861.53.2681.53.30
2.00.4722.03.0042.03.1862.03.2682.03.30
2.50.5222.53.0042.53.1962.53.2682.53.30
3.00.5523.03.0143.03.1963.03.2683.03.30
3.50.5923.53.0243.53.1963.53.2683.53.30
4.00.6424.03.0244.03.2064.03.2684.03.30
4.50.7124.53.0344.53.2064.53.2684.53.30
5.00.8025.03.0345.03.2065.03.2785.03.30
5.50.9125.53.0445.53.2065.53.2785.53.30
6.01.0326.03.0546.03.2066.03.2786.03.30
6.51.1626.53.0546.53.2166.53.2786.53.30
7.01.3027.03.0647.03.2167.03.2787.03.30
7.51.4427.53.0647.53.2167.53.2787.53.30
8.01.5828.03.0748.03.2168.03.2788.03.30
8.51.7228.53.0848.53.2268.53.2788.53.31
9.01.8529.03.0849.03.2269.03.2789.03.31
9.51.9729.53.0949.53.2269.53.2889.53.31
10.02.0830.03.0950.03.2270.03.2890.03.31
10.52.1930.53.1050.53.2270.53.2890.53.31
11.02.2931.03.1051.03.2371.03.2891.03.31
11.52.3731.53.1151.53.2371.53.2891.53.31
12.02.4532.03.1152.03.2372.03.2892.03.31
12.52.5332.53.1252.53.2372.53.2892.53.31
13.02.5933.03.1253.03.2373.03.2893.03.31
13.52.6433.53.1353.53.2373.53.2893.53.31
14.02.6934.03.1354.03.2474.03.2894.03.31
14.52.7434.53.1454.53.2474.53.2894.53.31
15.02.7735.03.1455.03.2475.03.2995.03.31
15.52.8035.53.1455.53.2475.53.2995.53.31
16.02.8336.03.1556.03.2476.03.2996.03.31
16.52.8636.53.1556.53.2476.53.2996.53.31
17.02.8837.03.1557.03.2577.03.2997.03.31
17.52.9037.53.1657.53.2577.53.2997.53.32
18.02.9138.03.1658.03.2578.03.2998.03.32
18.52.9338.53.1658.53.2578.53.2998.53.32
19.02.9439.03.1759.03.2579.03.2999.03.32
19.52.9539.53.1759.53.2579.53.2999.53.32
20.02.9640.03.1760.03.2580.03.29100.03.32

Bulletin No. 2020–45 991 November 2, 2020
Rev. Proc. 2020-43
SECTION 1. PURPOSE AND SCOPE
This revenue procedure provides the
maximum amount allowed to be newly
made available for plan years beginning
after December 31, 2020, and before
January 1, 2022, for excepted benefit
health reimbursement arrangements pro-
vided under § 54.9831-1(c)(3)(viii). The
maximum amount indexed pursuant to
§ 54.9831-1(c)(3)(viii)(B)(1) will not
change for plan years beginning after De-
cember 31, 2020, and before January 1,
2022, and remains $1,800.
SECTION 2. BACKGROUND
Under § 54.9831-1(c)(3), certain group
health plans qualify as limited except-
ed benefits that are not subject to the re-
quirements of Chapter 100 of the Inter-
nal Revenue Code. Section 54.9831-1(c)
(3)(viii) provides rules for health reim-
bursement arrangements (HRAs) and
other account-based group health plans
to qualify as limited excepted benefits.
Section 54.9831-1(c)(3)(viii)(B) provides
that amounts newly made available for
each plan year under the HRA or other
account-based group health plan (except-
ed benefit HRA) may not exceed $1,800.
For plan years beginning after December
31, 2020, the $1,800 dollar amount is
increased by an amount equal to $1,800
multiplied by the applicable cost-of-living
adjustment.
The applicable cost-of-living adjust-
ment for plan years beginning after De-
cember 31, 2020, and before January 1,
2022, is the percentage (if any) by which
the Chained Consumer Price Index for
All Urban Consumers (C-CPI-U), as pub-
lished by the Bureau of Labor Statistics of
the Department of Labor, for the preced-
ing year exceeds the C-CPI-U for calendar
year 2019. The C-CPI-U for any calendar
year is the average of the C-CPI-U as of
the close of the 12-month period ending
on March 31 of that calendar year. Any
increase that is not a multiple of $50 is
rounded down to the next lowest multiple
of $50.
SECTION 3. PROCEDURE
For plan years beginning after Decem-
ber 31, 2020, and before January 1, 2022,
the maximum amount that may be made
newly available for the plan year for an
excepted benefit HRA under § 54.9831-
1(c)(3)(viii) is $1,800. The Department
of the Treasury and the Internal Revenue
Service intend to publish, by June 1, 2021,
the adjusted amount for plan years begin-
ning after December 31, 2021, and before
January 1, 2023.
SECTION 4. EFFECTIVE DATE
The effective date of this revenue pro-
cedure is the date of publication of this
revenue procedure in the Internal Revenue
Bulletin.
SECTION 5. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Christopher Dellana of the
Office of Associate Chief Counsel (Em-
ployee Benefits, Exempt Organizations,
and Employment Taxes). For further in-
formation regarding this revenue proce-
dure, contact Mr. Dellana at (202) 317-
5500 (not a toll-free number).
Revenue Procedure
2020-44
SECTION 1. PURPOSE
The purpose of this revenue procedure
is to facilitate the market’s transition from
the London Interbank Offered Rate (LI-
BOR) and other interbank offered rates
(IBORs) to alternative reference rates
through adoption of fallback language
recommended by the Alternative Ref-
erence Rates Committee (ARRC) and
the International Swaps and Derivatives
Association (ISDA). In support of the
ARRC’s phased transition plan to assist
market participants as they prepare for
this transition away from IBORs, this
revenue procedure provides that certain
modifications to a contract with terms ref-
erencing an IBOR will not be treated as
an exchange of property for other property
differing materially in kind or extent for
purposes of § 1.1001-1(a) of the Income
Tax Regulations. In addition, this revenue
procedure provides that such modifica-
tions will not be treated as a legging out
of an integrated transaction, a termination
of a qualified hedge, or as a disposition
or termination of either leg of a hedging
transaction.
SECTION 2. BACKGROUND
.01 LIBOR and other IBORs. On July
27, 2017, the Financial Conduct Author-
ity, the United Kingdom regulator tasked
with overseeing LIBOR, announced that
all currency and term variants of LIBOR,
including U.S.-dollar LIBOR (USD LI-
BOR), may be phased out after the end of
2021. The Financial Stability Board and
the Financial Stability Oversight Council
have publicly acknowledged that, in light
of the prevalence of USD LIBOR as the
reference rate in a broad range of financial
instruments, the probable elimination of
USD LIBOR has created risks that pose a
potential threat not only to the safety and
soundness of individual financial institu-
tions but also to financial stability gener-
ally.
.02 The ARRC and SOFR. The ARRC,
whose ex officio members include the
Board of Governors of the Federal Re-
serve System, the Department of the Trea-
sury (Treasury Department), the Com-
modity Futures Trading Commission, and
the Office of Financial Research, was con-
vened by the Board of Governors of the
Federal Reserve System and the Federal
Reserve Bank of New York to identify an
alternative reference rate that would be
more robust than USD LIBOR and that
would comply with standards such as the
International Organization of Securities
Commissions’ “Principles for Financial
Benchmarks.” After considering a com-
prehensive list of alternatives, the ARRC
recommended the Secured Overnight Fi-
nancing Rate (SOFR) as the replacement
for USD LIBOR. Since April 3, 2018, the
Federal Reserve Bank of New York has
published SOFR daily.
.03 ARRC contract fallback language.
The ARRC was also tasked with facilitat-
ing the voluntary acceptance of SOFR as
the replacement for USD LIBOR. Many

November 2, 2020 992 Bulletin No. 2020–45
cash products, including newly issued
cash products, refer to USD LIBOR and
contain fallback provisions that do not ad-
equately protect against the cessation of
that benchmark. To support the transition
from USD LIBOR, the ARRC has pub-
lished recommended fallback language
for inclusion in the terms of certain newly
issued cash products, including floating
rate notes, bilateral business loans, syn-
dicated loans, securitizations, adjustable
rate mortgages, and variable-rate private
student loans. In each case, the fallback
language describes the circumstances
under which references to the current
benchmark rate are replaced. When such
a circumstance arises, the fallback lan-
guage generally provides a mechanism for
determining the replacement benchmark
rate that supplants the current benchmark
rate. The fallback language generally also
provides a mechanism for determining a
spread adjustment that is added to the re-
placement benchmark rate to account for
any difference between the replacement
benchmark rate and the current bench-
mark rate. Although the ARRC has rec-
ommended this fallback language for use
in newly issued cash products, the ARRC
believes that parties to outstanding cash
products that refer to USD LIBOR will
also modify the contracts relating to those
cash products to incorporate the appropri-
ate fallback language.
.04 ISDA and derivative contracts. The
ARRC has also been actively engaged
in work led by ISDA to ensure that the
contractual fallback provisions in deriv-
ative contracts are sufficiently robust to
prevent serious market disruptions if LI-
BOR is permanently discontinued. Doc-
uments published by ISDA, such as the
2002 ISDA Master Agreement and the
2006 ISDA Definitions, form the basic
framework of many derivative contracts.
Section 7.1 of the 2006 ISDA Definitions
lists and defines the various standard
floating rates from which the parties may
choose in creating a derivative contract
(rate options). These rate options may be
combined with other elements, such as the
addition of a fixed spread, to determine
the overall floating rate under the deriv-
ative contract. Generally, the 2006 ISDA
Definitions define each rate option by de-
scribing the methodology for determining
the value of the rate option at each reset
date. In the case of rate options that refer
to IBORs, the 2006 ISDA Definitions also
provide fallback provisions that generally
designate another rate to stand in for the
relevant IBOR if the IBOR is unavailable.
(1) The ISDA Supplement. By publish-
ing supplements to the 2006 ISDA Defi-
nitions, ISDA can amend the provisions
of the 2006 ISDA Definitions to address
developments in the market. ISDA posted
Supplement number 70 to the 2006 ISDA
Definitions on https://www.isda.org on
October 9, 2020, (ISDA Supplement) to
facilitate inclusion of new fallbacks for
certain key IBORs in derivatives transac-
tions entered into on or after the date the
ISDA Supplement takes effect. The ISDA
Supplement has a final date of October 23,
2020, and a publication and effectiveness
date of January 25, 2021. Among other
things, the ISDA Supplement amends the
fallback provisions for rate options that re-
fer to IBORs to provide that, upon the oc-
currence of certain events, a substitute rate
identified in the ISDA Supplement replaces
the relevant IBOR. For example, upon an
official announcement or publication re-
garding the permanent discontinuation or
unreliability of USD LIBOR, the ISDA
Supplement generally provides that USD
LIBOR is replaced by a rate that is the sum
of tenor-adjusted SOFR and an adjustment
spread based on the historical difference
between USD LIBOR and tenor-adjusted
SOFR. Derivative contracts entered into
on or after the effective date of the ISDA
Supplement will generally include the rele-
vant terms of the 2006 ISDA Definitions as
amended by the ISDA Supplement.
(2) The ISDA Protocol. Unless modi-
fied by the parties, the terms of derivative
contracts entered into prior to the effec-
tive date of the ISDA Supplement (legacy
derivative contracts) will not incorporate
the terms of the ISDA Supplement. ISDA
posted the final ISDA 2020 IBOR Fall-
backs Protocol on https://www.isda.org on
October 9, 2020, (ISDA Protocol) to facil-
itate adoption of the ISDA Supplement by
parties to legacy derivative contracts. The
ISDA Protocol will launch publicly and
open for adherence on October 23, 2020.
If parties adhere to the ISDA Protocol,
all covered derivative contracts between
those parties are generally modified to in-
corporate the terms of the ISDA Supple-
ment or, in some cases, to incorporate a
version of the terms of the ISDA Supple-
ment adapted to fit the existing terms of
the contract.
(3) Bilateral agreements. In some cir-
cumstances, legacy derivative contracts
and other contracts may incorporate the
terms of an ISDA Fallback (as defined in
section 3.02 of this revenue procedure) on
a transaction-by-transaction basis through
an agreement between the parties to the
contract (bilateral agreement) rather than
through adherence to the ISDA Protocol.
For example, bilateral agreements may be
necessary when some aspect of the law
of a non-U.S. jurisdiction prevents adher-
ence to the ISDA Protocol.
.05 Guidance on modifications to re-
place an IBOR. The Treasury Department
and the Internal Revenue Service (IRS)
have determined that it is appropriate to
provide guidance on the tax consequenc-
es of modifying debt instruments, deriv-
ative contracts, and other contracts to re-
place IBORs or add fallback provisions
to IBORs. The Treasury Department and
the IRS published proposed regulations
(84 F.R. 54068) on October 9, 2019 (Pro-
posed Regulations).
1
On March 12, 2020,
the ARRC submitted a letter to the Trea-
sury Department and the IRS in which the
ARRC provided comments on the Pro-
posed Regulations.
In connection with development of the
ISDA Protocol, the ARRC submitted writ-
ten comments to the Treasury Department
and the IRS on December 9, 2019, De-
cember 20, 2019, January 30, 2020, and
July 10, 2020, recommending guidance
on the tax consequences of modifying a
contract as provided in the ISDA Protocol.
(Those written comments and the ARRC’s
letter dated March 12, 2020, are collec-
tively referred to as the “ARRC Letters.”)
The ARRC also recommended similar
guidance for the ARRC Fallbacks (as de-
fined in section 3.01 of this revenue pro-
cedure). For reasons detailed in the ARRC
Letters, the ARRC has recommended is-
1
The preamble to the Proposed Regulations generally provides that a taxpayer may rely on the Proposed Regulations before the publication of the final regulations in the Federal Register.

Bulletin No. 2020–45 993 November 2, 2020
suing guidance that is separate from the
Proposed Regulations and specific to the
ARRC Fallbacks and the ISDA Protocol.
Having reviewed the ARRC Fallbacks and
the ISDA Protocol, the Treasury Depart-
ment and the IRS have concluded that in-
terim guidance in advance of finalizing the
Proposed Regulations is needed to support
the adoption of the ARRC Fallbacks and
the ISDA Protocol. The following para-
graphs of this section 2.05 describe the
guidance recommended by the ARRC.
(1) Guidance recommended under sec-
tion 1001. Section 1001 of the Internal
Revenue Code (Code) provides rules for
determining the amount and recognition
of gain or loss from the sale or other dis-
position of property. Section 1.1001-1(a)
generally provides that gain or loss is re-
alized upon the exchange of property for
other property differing materially either
in kind or in extent. In the case of a debt
instrument, § 1.1001-3 provides rules for
determining whether a modification of the
terms of the debt instrument results in an
exchange of the original debt instrument
for a modified debt instrument that differs
materially either in kind or in extent for
purposes of § 1.1001-1(a). The ARRC
Letters generally recommend guidance
providing that the modification of a con-
tract to incorporate the terms of an ARRC
Fallback, an ISDA Fallback, or certain
variants of an ARRC or ISDA Fallback
described in section 4.02(3) of this rev-
enue procedure does not result in an ex-
change under § 1.1001-1(a).
(2) Guidance recommended on inte-
grated transactions. A debt instrument
and one or more derivative contracts
may be treated in certain circumstanc-
es as a single, integrated instrument for
certain specified purposes. For example,
§ 1.1275-6 describes the circumstances
under which a debt instrument may be in-
tegrated with a derivative contract for the
purpose of determining the amount and
timing of the taxpayer’s income, deduc-
tion, gain, or loss. Sections 1.148-4(h) (re-
garding arbitrage investment restrictions
on tax-exempt bonds) and 1.988-5(a)
(regarding foreign currency transactions)
also provide rules by which a debt instru-
ment may be integrated with a derivative
contract. Similarly, § 1.446-4 generally
provides that the method of accounting
used by a taxpayer for a derivative con-
tract that qualifies as a hedging transac-
tion must reasonably match the timing of
income, deduction, gain, or loss from the
hedging transaction with the timing of the
income, deduction, gain, or loss from the
item or items being hedged. The modifica-
tion or termination of a derivative contract
or debt instrument that is part of an inte-
grated transaction or hedging transaction
under one of the foregoing regulations
may result in unfavorable tax consequenc-
es, such as accelerating the recognition of
gain. The ARRC Letters recommend guid-
ance providing that the modification of an
integrated transaction or hedging transac-
tion to incorporate the terms of an ARRC
Fallback, an ISDA Fallback, or certain
variants of an ARRC or ISDA Fallback
described in section 4.02(3) of this reve-
nue procedure does not result in legging
out of the integrated transaction, terminat-
ing either leg of the hedging transaction,
or otherwise severing the integration au-
thorized or required by the foregoing reg-
ulations.
SECTION 3. DEFINITIONS
This section 3 defines certain terms for
the purpose of this revenue procedure.
.01 ARRC Fallback.
(1) In general. An “ARRC Fallback”
is contract language that is recommend-
ed by the ARRC and identified in any one
of sections 3.01(2)(i) through (ix) of this
revenue procedure.
2
An ARRC Fallback
includes any option or variant provided in
the contract language identified in sections
3.01(2)(i) through (ix) of this revenue pro-
cedure and excludes any option or vari-
ant not provided in the contract language
identified in sections 3.01(2)(i) through
(ix) of this revenue procedure, even if
that option or variant is recommended
elsewhere by the ARRC. As of October
9, 2020, the ARRC Fallbacks consist of
recommended contract language for ad-
justable rate mortgages, bilateral business
loans, floating rate notes, securitizations,
syndicated loans, and variable-rate private
student loans and are publicly available
at https://www.newyorkfed.org/arrc/fall-
backs-contract-language.
(2) Identification of contract language.
The contract language contained in each
of the following materials is identified in
this section 3.01(2)—
(i) Part II: Fallback Language for
New Closed-End, Residential Adjustable
Rate Mortgages of the document entitled
ARRC Recommendations Regarding More
Robust LIBOR Fallback Contract Lan-
guage for New Closed-End, Residential
Adjustable Mortgages, dated November
15, 2019;
(ii) The section entitled “Hardwired
Approach” Fallback Language of Part II:
Fallback Language for New Originations
of LIBOR Bilateral Business Loans of the
document entitled ARRC Recommenda-
tions Regarding More Robust Fallback
Language for New Originations of LIBOR
Bilateral Business Loans, dated May 30,
2019;
(iii) The section entitled Hedged Loan
Approach of Part II: Fallback Language
for New Originations of LIBOR Bilater-
al Business Loans of the document enti-
tled ARRC Recommendations Regarding
More Robust Fallback Language for New
Originations of LIBOR Bilateral Business
Loans, dated May 30, 2019;
(iv) Part II: Fallback Language for
New Originations of LIBOR Bilateral
Business Loans of the document enti-
tled ARRC Recommendations Regarding
More Robust Fallback Language for New
Originations of LIBOR Bilateral Business
Loans, dated August 27, 2020.
(v) Part II: Fallback Language for
New Issuances of LIBOR Floating Rate
Notes of the document entitled ARRC
Recommendations Regarding More Ro-
bust Fallback Language for New Issuanc-
es of LIBOR Floating Rate Notes, dated
April 25, 2019;
2
The ARRC Fallbacks do not include the amendment approach that the ARRC once recommended for bilateral business loans and syndicated loans. Rather than the more formulaic approach
used by the ARRC in the ARRC Fallbacks, the fallback rate under the amendment approach is effectively determined by negotiation of the parties to the contract. As a result, the Treasury
Department and the IRS have concluded that the addition and operation of the fallback provisions in the amendment approach should be evaluated under the standards provided in either the
Proposed Regulations or, when published, the final regulations.

November 2, 2020 994 Bulletin No. 2020–45
(vi) Part II: Fallback Language for
New Issuances of LIBOR Securitizations
of the document entitled ARRC Recom-
mendations Regarding More Robust Fall-
back Language for New Issuances of LI-
BOR Securitizations, dated May 31, 2019;
(vii) The section entitled “Hardwired
Approach” Fallback Language of Part
II: Fallback Language for New Origina-
tions of LIBOR Syndicated Loans of the
document entitled ARRC Recommenda-
tions Regarding More Robust Fallback
Language for New Originations of LI-
BOR Syndicated Loans, dated April 25,
2019;
(viii) Part II: Fallback Language for
New Originations of LIBOR Syndicated
Loans of the document entitled ARRC
Recommendations Regarding More Ro-
bust Fallback Language for New Origina-
tions of LIBOR Syndicated Loans, dated
June 30, 2020; and
(ix) Part II: Fallback Language for
New Variable-Rate Private Student Loans
of the document entitled ARRC Consulta-
tion Regarding More Robust LIBOR Fall-
back Contract Language for New Variable
Rate Private Student Loans, dated June
30, 2020.
.02 ISDA Fallback. An “ISDA Fall-
back” is the set of terms provided in any
one of the sections numbered one through
six in the version of the Attachment to the
ISDA Protocol that is publicly available
at https://www.isda.org as of October 9,
2020.
SECTION 4. SCOPE
.01 This revenue procedure applies to
any contract with terms that reference an
IBOR and that are modified as described
in section 4.02 of this revenue procedure.
For this purpose, a contract includes but is
not limited to a derivative contract, a debt
instrument, stock, an insurance contract,
and a lease agreement.
.02 This revenue procedure applies to
any of the following modifications—
(1) The contract is modified to incor-
porate an ISDA Fallback, regardless of
whether that modification results from
adherence to the ISDA Protocol or a bilat-
eral agreement between the parties to the
contract.
(2) The contract is modified to incorpo-
rate an ARRC Fallback.
(3) The contract is modified to incorpo-
rate the terms of either an ARRC Fallback
or an ISDA Fallback with certain devia-
tions, provided all deviations fall into one
or more of the following categories—
(i) Deviations from the terms of an
ARRC Fallback or an ISDA Fallback
that are reasonably necessary to make the
terms incorporated into the contract legal-
ly enforceable in a relevant jurisdiction or
to satisfy legal requirements of that juris-
diction;
(ii) Deviations from the terms of an
ISDA Fallback that are reasonably neces-
sary to incorporate the ISDA Fallback into
a contract that is not a Protocol Covered
Document (as defined in the ISDA Proto-
col);
(iii) Deviations from the terms of an
ARRC Fallback or an ISDA Fallback to
omit terms of an ARRC Fallback or an
ISDA Fallback that cannot under any
circumstances affect the operation of
the modified contract (for example, for a
contract that refers only to USD LIBOR,
omission of the portions of an ISDA Fall-
back that relate exclusively to contracts
referring to another IBOR); or
(iv) Deviations from the terms of an
ARRC Fallback or an ISDA Fallback to
add, to revise, or to remove technical, ad-
ministrative, or operational terms, provid-
ed that the addition, revision, or removal
is reasonably necessary to adopt or to im-
plement the ARRC Fallback or the ISDA
Fallback. Examples of technical, admin-
istrative, or operational terms include the
definition of interest period, the timing
and frequency of determining rates, and
the timing and frequency of making pay-
ments of interest. This section 4.02(3)(iv)
does not apply to the addition of a term
that obligates one party to make a one-
time payment (or similar payments) as
a substitute for any portion of an ARRC
Fallback or an ISDA Fallback or as con-
sideration for the modification.
SECTION 5. APPLICATION
.01 If a contract described in section
4.01 of this revenue procedure is modi-
fied as described in section 4.02 of this
revenue procedure, that modification is
not treated as the exchange of property
for other property differing materially in
kind or extent for purposes of § 1.1001-
1(a). For example, in the case of a debt
instrument that is described in section
4.01 of this revenue procedure and that is
modified as described in section 4.02 of
this revenue procedure, the modification
is not treated as a significant modification
for purposes of § 1.1001-3, which pro-
vides rules for determining whether the
modification results in an exchange of
the original debt instrument for a modi-
fied debt instrument that differs material-
ly either in kind or in extent for purposes
of § 1.1001-1(a).
.02 If a contract described in section
4.01 of this revenue procedure is one
leg of a transaction integrated under
§ 1.1275-6 or § 1.988-5(a), the modi-
fication of that contract as described in
section 4.02 of this revenue procedure
is not treated as legging out of the inte-
grated transaction under § 1.1275-6 or
§ 1.988-5(a). If a contract described in
section 4.01 of this revenue procedure is
integrated under § 1.148-4(h), the mod-
ification of that contract as described in
section 4.02 of this revenue procedure is
not treated as terminating the qualified
hedge under § 1.148-4(h). If a contract
described in section 4.01 of this revenue
procedure is part of a hedging transaction
under § 1.446-4, the modification of that
contract as described in section 4.02 of
this revenue procedure is not treated as a
disposition or termination of either leg of
the transaction under § 1.446-4.
.03 If a contract described in section
4.01 of this revenue procedure is modified
as described in section 4.02 of this reve-
nue procedure (covered modification) and
is contemporaneously modified in a man-
ner not described in section 4.02 of this
revenue procedure (noncovered modifica-
tion), the regulations identified in sections
5.01 and 5.02 of this revenue procedure
apply to the noncovered modifications
without regard to the special rules provid-
ed in sections 5.01 and 5.02 of this reve-
nue procedure. In addition, when applying
each regulation identified in sections 5.01
and 5.02 of this revenue procedure, the
covered modifications are treated as part
of the terms of the contract prior to any
modification that is not a covered modifi-
cation. As a result, covered modifications
are treated as part of the existing terms
of the contract against which other con-
temporaneous, subsequent, or cumulative

Bulletin No. 2020–45 995 November 2, 2020
modifications are tested under the regula-
tions identified in sections 5.01 and 5.02
of this revenue procedure.
SECTION 6. EFFECTIVE DATE
This revenue procedure is effective for
modifications to contracts occurring on or
after October 9, 2020, and before January
1, 2023. A taxpayer, however, may rely on
this revenue procedure for modifications
to contracts occurring before October 9,
2020.
SECTION 7. ADDITIONAL
GUIDANCE
In future guidance published in the
Internal Revenue Bulletin, the Treasury
Department and the IRS may provide
additional relief as necessary to address
developments in the transition away from
IBORs. For example, if the ARRC mod-
ifies the contract language identified in
section 3.01(2) of this revenue procedure
or recommends similar contract language
for inclusion in other cash products after
October 9, 2020, the Treasury Department
and the IRS will evaluate the ARRC’s
new or revised contract language and may
supplement the definition of an ARRC
Fallback accordingly. The Treasury De-
partment and the IRS request comments
on the list of deviations in section 4.02(3)
of this revenue procedure, including the
need for additional categories of deviation
in that list. Comments should be submit-
ted in writing on or before December 31,
2022, and should contain a reference to
this Rev. Proc. 2020-44.
All comments will be available for
public inspection and copying. Com-
menters are strongly suggested to submit
comments electronically, as access to mail
may be limited. Comments may be sub-
mitted in one of two ways:
(1) Electronically via the Federal
eRulemaking Portal at https://www.reg-
ulations.gov (type “IRS-2020-0029” in
the search field on the homepage to find
this revenue procedure and submit com-
ments); or
(2) Alternatively, by mail to Internal
Revenue Service, CC:PA:LPD:PR (Rev.
Proc. 2020-44), Room 5203, P.O. Box
7604, Ben Franklin Station, Washington,
DC 20044.
SECTION 8. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Spence Hanemann of the
Office of Associate Chief Counsel (Finan-
cial Institutions & Products). For further
information regarding this revenue pro-
cedure contact Caitlin Holzem or Spence
Hanemann at (202) 317-6842 (not a toll-
free call).
Revenue Procedure
2020-46
SECTION 1. PURPOSE
This revenue procedure modifies
and updates Rev. Proc. 2016-47, 2016-
37 I.R.B. 346. Section 3.02(2) of Rev.
Proc. 2016-47 provides a list of per-
missible reasons for self-certification
of eligibility for a waiver of the 60-day
rollover requirement. In response to re-
quests from stakeholders, this revenue
procedure modifies that list by adding a
new reason: a distribution was made to a
state unclaimed property fund. As under
Rev. Proc. 2016-47, a self-certification
relates only to the reasons for missing the
60-day deadline, not to whether a distri-
bution is otherwise eligible to be rolled
over. Section 3.04(1) of this revenue pro-
cedure provides examples of situations in
which a distribution would not be eligi-
ble to be rolled over. The appendix sets
forth model language that may be used
for self-certification.
SECTION 2. BACKGROUND
.01 Sections 402(c)(3)(A) and 408(d)
(3)(A) of the Internal Revenue Code pro-
vide that any amount distributed from a
qualified plan or individual retirement
arrangement (IRA) will be excluded
from income if it is transferred to an el-
igible retirement plan no later than the
60th day following the day of receipt. A
similar rule applies to § 403(a) annuity
plans, § 403(b) tax sheltered annuities,
and § 457 eligible governmental plans.
See §§ 403(a)(4)(B), 403(b)(8)(B), and
457(e)(16)(B).
.02 Section 401(a)(31) requires that
a plan qualified under § 401(a) provide
for the direct transfer of eligible roll-
over distributions. A similar rule ap-
plies to § 403(a) annuity plans, § 403(b)
tax-sheltered annuities, and § 457 eligi-
ble governmental plans. See §§ 403(a)
(1), 403(b)(10), and 457(d)(1)(C). Sec-
tion 1.401(a)(31)-1, Q&A-14, provides
examples of situations in which a plan
administrator may reasonably conclude
that a contribution, whether made via a
direct transfer or a 60-day rollover, is a
valid rollover contribution to a § 401(a)
or 403(a) plan. Several of the examples
illustrate circumstances under which a
plan administrator may rely on certain
certifications and documentation that a
rollover contribution that is not a direct
transfer is being made no later than 60
days following receipt.
.03 An IRA trustee reports a rollover
contribution received during a year on a
Form 5498, IRA Contribution Informa-
tion, for that year.
.04 Sections 402(c)(3)(B) and 408(d)
(3)(I) provide that the Secretary may
waive the 60-day rollover requirement
“where the failure to waive such require-
ment would be against equity or good
conscience, including casualty, disaster,
or other events beyond the reasonable
control of the individual subject to such
requirement.”
.05 Under §§ 7508 and 7508A, the time
for making a rollover may be postponed
in the event of service in a combat zone
or in the case of a federally declared di-
saster or a terroristic or military action.
See § 301.7508-1 and Rev. Proc. 2018-58,
2018-50 I.R.B. 990. Also, under § 402(c)
(3)(C), the time for making a rollover
of a qualified plan loan offset amount is
postponed until the tax return due date
(including extensions) for the taxable year
in which the plan loan offset is treated as
distributed.
.06 Rev. Proc. 2003-16, 2003-4 I.R.B.
359, establishes a letter-ruling procedure
for taxpayers to apply to the Internal
Revenue Service (IRS) for a waiver of
the 60-day rollover requirement, under
§ 402(c)(3)(B) or 408(d)(3)(I). Section
3.03 of Rev. Proc. 2003-16 also provides
for automatic approval for a waiver of
the 60-day rollover requirement in certain
circumstances in which a rollover is not

November 2, 2020 996 Bulletin No. 2020–45
made timely due to an error on the part of
a financial institution.
.07 Rev. Proc. 2016-47 provides guid-
ance concerning waivers of the 60-day
rollover requirement in §§ 402(c)(3) and
408(d)(3). Specifically, it provides for a
self-certification procedure (subject to
verification on audit) that may be used
by a taxpayer claiming eligibility for a
waiver under § 402(c)(3)(B) or 408(d)(3)
(I) with respect to a rollover into a plan
or IRA. It provides that a plan administra-
tor, or an IRA trustee, custodian, or issuer
(IRA trustee), may rely on the certification
in accepting and reporting receipt of a
rollover contribution. It also modifies Rev.
Proc. 2003-16 by providing that the IRS
may grant a waiver during an examination
of the taxpayer’s income tax return.
.08 Rev. Proc. 2020-4, 2020-1 I.R.B.
148, provides the procedures for issuing
letter rulings on matters under the juris-
diction of the Commissioner, Tax Exempt
and Government Entities Division.
SECTION 3. SELF-CERTIFICATION
.01 Written self-certification. A taxpay-
er may make a written certification to a
plan administrator or an IRA trustee that
a contribution satisfies the conditions in
Section 3.02 of this revenue procedure.
This self-certification has the effects de-
scribed in Section 3.04 of this revenue
procedure. Taxpayers may make the cer-
tification by using the model language in
the appendix on a word-for-word basis
or by using language that is substantially
similar in all material respects. A copy of
the certification should be kept in the tax-
payer’s files and be available if requested
on audit.
.02 Conditions for self-certification.
(1) No prior denial by the IRS. The IRS
must not have previously denied a waiver
request with respect to a rollover of all or
part of the distribution to which the contri-
bution relates.
(2) Reason for missing 60-day dead-
line. The taxpayer must have missed the
60-day deadline because of the taxpayer’s
inability to complete a rollover due to one
or more of the following reasons:
(a) an error was committed by the fi-
nancial institution receiving the contribu-
tion or making the distribution to which
the contribution relates;
(b) the distribution, having been made
in the form of a check, was misplaced and
never cashed;
(c) the distribution was deposited into
and remained in an account that the tax-
payer mistakenly thought was an eligible
retirement plan;
(d) the taxpayer’s principal residence
was severely damaged;
(e) a member of the taxpayer’s family
died;
(f) the taxpayer or a member of the tax-
payer’s family was seriously ill;
(g) the taxpayer was incarcerated;
(h) restrictions were imposed by a for-
eign country;
(i) a postal error occurred;
(j) the distribution was made on ac-
count of a levy under § 6331 and the pro-
ceeds of the levy have been returned to the
taxpayer;
(k) the party making the distribution to
which the rollover relates delayed provid-
ing information that the receiving plan or
IRA required to complete the rollover de-
spite the taxpayer’s reasonable efforts to
obtain the information; or
(l) the distribution was made to a state
unclaimed property fund.
(3) Contribution as soon as practica-
ble; 30-day safe harbor. The contribution
must be made to the plan or IRA as soon
as practicable after the reason or reasons
listed in the preceding paragraph no lon-
ger prevent the taxpayer from rolling over
the amount distributed (which includes
any amount withheld for income tax) or a
lesser amount if the taxpayer wants to roll
over less than the total amount distribut-
ed or if part of the amount distributed is
ineligible for rollover. This requirement is
deemed to be satisfied if the contribution
is made within 30 days after the reason
or reasons no longer prevent the taxpayer
from making the contribution.
.03 Reporting on Form 5498. An IRA
trustee that accepts a rollover contribution
after the 60-day deadline reports on Form
5498 that the contribution was accepted
after the 60-day deadline.
.04 Effect of self-certification.
(1) Only for 60-day deadline. A self-cer-
tification under this revenue procedure ap-
plies only for purposes of a waiver of the
60-day requirement for a valid rollover; it
does not apply for purposes of any other re-
quirement for a valid rollover. For example,
a taxpayer may not roll over a distribution
if it is a required minimum distribution or if
the taxpayer is a nonspouse beneficiary. In
addition, in the case of a distribution from
an IRA, (i) a rollover to another IRA is not
permitted if the taxpayer has made an IRA
rollover of another IRA distribution made in
the prior 1-year period, and (ii) any rollover
must consist of the same property distribut-
ed (for example, if shares of a company are
distributed from an IRA, some or all of the
shares may be rolled over, but no proceeds
from the sale of those shares can be rolled
over). The one-rollover-per-year limitation
described in the preceding sentence does
not apply to trustee-to-trustee transfers or
to conversions (that is, rollovers from tra-
ditional IRAs to Roth IRAs). See IRS Pub-
lication 590-A, Contributions to Individual
Retirement Arrangements (IRAs).
(2) Effect on plan administrator or IRA
trustee. For purposes of accepting and re-
porting a rollover contribution into a plan
or IRA, a plan administrator or IRA trustee
may rely on a taxpayer’s self-certification
described in this Section 3 in determining
whether the taxpayer has satisfied the con-
ditions for a waiver of the 60-day rollover
requirement under § 402(c)(3)(B) or 408(d)
(3)(I). However, a plan administrator or an
IRA trustee may not rely on the self-certifi-
cation for other purposes or if the plan ad-
ministrator or IRA trustee has actual knowl-
edge that is contrary to the self-certification.
(3) Effect on taxpayer. A self-certifi-
cation is not a waiver by the IRS of the
60-day rollover requirement. However, a
taxpayer may report the contribution as a
valid rollover unless later informed other-
wise by the IRS. The IRS, in the course of
an examination, may consider whether a
taxpayer’s contribution meets the require-
ments for a waiver. For example, the IRS
may determine that the requirements for a
waiver were not met because of a material
misstatement in the self-certification, the
reason or reasons claimed by the taxpay-
er for missing the 60-day deadline did not
prevent the taxpayer from completing the
rollover within 60 days following receipt,
or the taxpayer failed to make the con-
tribution as soon as practicable after the
reason or reasons no longer prevented the
taxpayer from making the contribution. In
such a case, the taxpayer may be subject
to income and excise taxes, interest, and
penalties, such as the penalty for failure

Bulletin No. 2020–45 997 November 2, 2020
to pay the proper amount of tax under
§ 6651.
SECTION 4. ADDITIONAL
WAIVERS DURING EXAM
In addition to automatic waivers and
waivers through application to the IRS
under Section 3 of Rev. Proc. 2003-16,
the IRS, in the course of examining a tax-
payer’s individual income tax return, may
determine that the taxpayer qualifies for a
waiver of the 60-day rollover requirement
under § 402(c)(3)(B) or 408(d)(3)(I).
SECTION 5. EFFECTIVE DATE
This revenue procedure is effective on
October 16, 2020.
SECTION 6. EFFECT ON OTHER
DOCUMENTS
Rev. Proc. 2016-47 is modified and su-
perseded by this revenue procedure, and
Rev. Proc. 2003-16 is modified by Section
4 of this revenue procedure.
SECTION 7. PAPERWORK
REDUCTION ACT
The collections of information con-
tained in this revenue procedure have
been reviewed and approved by the Of-
fice of Management and Budget in accor-
dance with the Paperwork Reduction Act
(44 U.S.C. § 3507) under control number
1545-2269.
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
revenue procedure are in Section 3.01.
The collection of information relates to a
certification by taxpayers wanting a waiv-
er of the 60-day requirement for rollovers
of distributions from plans or IRAs. The
collections of information are required to
obtain a benefit.
The likely recordkeepers are individ-
uals. Estimates of the annualized cost to
respondents are not relevant, because each
collection of information in this revenue
procedure is a one-time collection.
Books or records relating to a collec-
tion of information must be retained as
long as their contents may become mate-
rial in the administration of any internal
revenue law. Generally, tax returns and tax
return information are confidential, as re-
quired by § 6103.
DRAFTING INFORMATION
The principal author of this revenue
procedure is Angelique Carrington of the
Office of Associate Chief Counsel (Em-
ployee Benefits, Exempt Organizations,
and Employment Taxes). For further in-
formation regarding this revenue proce-
dure, contact Ms. Carrington at (202) 317-
4148 (not a toll-free number).

November 2, 2020 998 Bulletin No. 2020–45
Appendix
Certification for Late Rollover Contribution
Name
Address
City, State, ZIP Code
Date: ______________________
Plan Administrator/Financial Institution
Address
City, State, ZIP Code
Dear Sir or Madam:
Pursuant to Internal Revenue Service (IRS) Revenue Procedure 2020-46, I certify that my contribution of $ [ENTER AMOUNT]
missed the 60-day rollover deadline for the reason(s) listed below under Reasons for Late Contribution. I am making this contribution
as soon as practicable after the reason or reasons listed below no longer prevent me from making the contribution. I understand that
this certification concerns only the 60-day requirement for a rollover and that, to complete the rollover, I must comply with all other
tax law requirements for a valid rollover and with your rollover procedures.
Pursuant to Revenue Procedure 2020-46, unless you have actual knowledge to the contrary, you may rely on this certification to show
that I have satisfied the conditions for a waiver of the 60-day rollover requirement for the amount identified above. You may not rely
on this certification in determining whether the contribution satisfies other requirements for a valid rollover.
Reasons for Late Contribution
I missed the 60-day rollover deadline for the following reason(s) (check all that apply):
_____ An error was committed by the financial institution making the distribution or receiving the contribution.
_____ The distribution was in the form of a check and the check was misplaced and never cashed.
_____ The distribution was deposited into and remained in an account that I mistakenly thought was a retirement plan or IRA.
_____ My principal residence was severely damaged.
_____ One of my family members died.
_____ I or one of my family members was seriously ill.
_____ I was incarcerated.
_____ Restrictions were imposed by a foreign country.
_____ A postal error occurred.
_____ The distribution was made on account of an IRS levy and the proceeds of the levy have been returned to me.
_____ The party making the distribution delayed providing information that the receiving plan or IRA required to complete the roll-
over despite my reasonable efforts to obtain the information.
_____ The distribution was made to a state unclaimed property fund.
Signature
I declare that the representations made in this certification are true and that the IRS has not previously denied a request for a waiver
of the 60-day rollover requirement with respect to a rollover of all or part of the distribution to which this contribution relates. I
understand that in the event I am audited and the IRS does not grant a waiver for this contribution, I may be subject to income and
excise taxes, interest, and penalties. If the contribution is made to an IRA, I understand you will report the contribution to the IRS. I
also understand that I should retain a copy of this signed certification with my tax records.
Signature: ________________________________

Bulletin No. 2020–45 999 November 2, 2020
Part IV
Announcement Regarding
the Effective Date of
Termination of the United
States-Hong Kong Shipping
Agreement
Announcement 2020-40
In August 1989, the United States and
Hong Kong concluded, through an ex-
change of diplomatic notes, an agreement
to exempt from income tax, on a recipro-
cal basis, income from the international
operation of ships (herein referred to as
the “shipping agreement”), TIAS 11892.
The shipping agreement entered into force
on August 16, 1989, and took effect for
taxable years on or after January 1, 1987.
Paragraph 8 of the shipping agreement
provides that either government may ter-
minate the agreement by giving written
notice of termination.
On July 14, 2020, the President issued
an Executive Order on Hong Kong Nor-
malization, which, among other things,
directed the heads of agencies to com-
mence all appropriate actions to further
the purposes of the order, including to
give Hong Kong notice of intent to ter-
minate the shipping agreement. See E.O.
13936 available at https://www.white-
house.gov/presidential-actions/presi-
dents-executive-order-hong-kong-nor-
malization/. The United States, through
its Consulate General in Hong Kong,
provided a written notification dated Au-
gust 18, 2020 to the Government of the
Hong Kong Special Administrative Re-
gion of its termination of the shipping
agreement. The Department of the Trea-
sury and the Internal Revenue Service
announce that the termination shall take
effect on January 1, 2021, and shall have
effect for taxable years beginning on or
after that date.
For further information regarding this
announcement contact the Office of As-
sociate Chief Counsel (International) at
(202) 317-3800 (not a toll-free number).

Bulletin No. 2020–45 i November 2, 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.

November 2, 2020 ii Bulletin No. 2020–45
Numerical Finding List
1
Bulletin 2020–45
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
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
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
Proposed Regulations:—Continued
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
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
Revenue Rulings:
2020-14, 2020-28 I.R.B. 33
2020-15, 2020-32 I.R.B. 233
2020-16, 2020-37 I.R.B. 550
2020-17, 2020-37 I.R.B. 552
2020-18, 2020-39 I.R.B. 584
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
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
9918, 2020-45 I.R.B. 979
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. 2020–45 iii November 2, 2020
Finding List of Current Actions on
Previously Published Items
1
Bulletin 2020–45
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
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INTERNAL REVENUE BULLETIN
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