Internal Revenue Bulletin 2026-38 (PDF rendition): IRS Notices

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Bulletin No. 2026–38
September 14, 2026
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
Notice 2026-51, page 314.
This notice sets forth updates on the corporate bond
monthly yield curve, the corresponding spot segment rates
for July 2026 used under § 417(e)(3)(D), the 24-month aver-
age segment rates applicable for August 2026, and the
30-year Treasury rates, as reflected by the application of §
430(h)(2)(C)(iv).
REG-107855-25, page 333.
These proposed regulations would revise procedures under
§ 1.430(d)-1 for determining the target normal cost and fund-
ing target as part of calculating the minimum required con-
tributions for most single-employer defined benefit pension
plans. These proposed regulations address which plan terms
are taken into account in the actuarial valuation of a plan for a
plan year, and what “plan-related expenses” must be included
in determining the minimum required contribution for the plan
year. The proposed regulations would also make other minor
amendments to conform this regulation to changes in other
regulations.
INCOME TAX
CC-00349938-26, page 317.
The proposed regulations would provide guidance regarding
eligible investments, which are the only assets in which Trump
account funds may be invested before the first day of the cal-
endar year in which the account beneficiary attains age 18. The
proposed regulations would affect account beneficiaries and
trustees of Trump accounts.
REG-117130-25, page 343.
These proposed regulations provide for the exclusion of
certain income from the calculation of deduction eligible
income for the deduction of foreign-derived deduction eligi-
ble income.
REG-119882-25, page 355.
These proposed regulations would provide that the refunded
portion of certain refundable Federal income tax credits
available to individuals is a “Federal public benefit” under
Title IV of the Personal Responsibility and Work Opportunity
Reconciliation Act of 1996 (PRWORA) that cannot be paid
to aliens who are not qualified aliens under PRWORA. These
regulations would affect taxpayers claiming the adoption
tax credit, the American opportunity tax credit, the child
tax credit, and the earned income credit. This document
also provides public notice of changes regarding eligibility
for the refunded portion of such Federal income tax credits
under PRWORA.
Finding Lists begin on page ii.

The IRS Mission
Provide America’s taxpayers top-quality service by helping
them understand and meet their tax responsibilities and
enforce the law with integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing offi-
cial 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.
September 14, 2026 Bulletin No. 2026–38

Part III
Update for Weighted
Average Interest Rates,
Yield Curves, and Segment
Rates
Notice 2026-51
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 inter-
est 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 interest rates that
must be used to determine a plan’s target
normal cost and funding target. Under
this provision, present value is generally
determined using three 24-month average
interest rates (“segment rates”), each of
which applies to cash flows during speci-
fied periods. To the extent provided under
§ 430(h)(2)(C)(iv), these segment rates
are adjusted by the applicable percentage
of the 25-year average segment rates for
the period ending September 30 of the
year preceding the calendar year in which
the plan year begins.
1
However, an elec-
tion may be made under § 430(h)(2)(D)
(ii) to use the monthly yield curve in place
of the segment rates.
Section 1.430(h)(2)-1(d) provides
rules for determining the monthly cor-
porate bond yield curve, and § 1.430(h)
(2)-1(c) provides rules for determining
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
§ 1.430(h)(2)-1(d), the monthly corporate
bond yield curve derived from July 2026
data is in Table 2026-7 at the end of this
notice. The spot first, second, and third
segment rates for the month of July 2026
are, respectively, 4.62, 5.62, and 6.51.
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 percent-
ages of the corresponding 25-year aver-
age segment rates. Those percentages are
95% and 105% for plan years beginning
in 2025 and 2026. For this purpose, any
25-year average segment rate that is less
than 5% is deemed to be 5%. The 25-year
average segment rates for plan years
beginning in 2025 and 2026 were pub-
lished in Notice 2024-67, 2024-41 I.R.B.
726 and Notice 2025-47, 2025-40 I.R.B.
441, respectively.
24-MONTH AVERAGE CORPORATE
BOND SEGMENT RATES
The three 24-month average corporate
bond segment rates applicable for August
2026 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
August 2026 4.35 5.28 5.96
The adjusted 24-month average seg-
ment rates set forth in the chart below
reflect § 430(h)(2)(C)(iv) of the Code. The
24-month averages applicable for August
2026, adjusted to be within the applicable
minimum and maximum percentages of
the corresponding 25-year average seg-
ment rates in accordance with § 430(h)(2)
(C)(iv), are as follows:
Adjusted 24-Month Average Segment Rates
For Plan Years
Beginning InApplicable MonthFirst SegmentSecond SegmentThird Segment
2025August 20264.755.285.96
2026August 20264.755.255.96
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
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-
1
Pursuant to § 433(h)(3)(A), the third 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)).
September 14, 2026 314 Bulletin No. 2026–38

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 July 2026 is 5.10 percent. The Service
determined this rate as the average of the
daily determinations of yield on the 30-year
Treasury bond maturing in May 2056. For
plan years beginning in August 2026, the
weighted average of the rates of interest on
30-year Treasury securities and the permis-
sible range of rates used to calculate current
liability are as follows:
Treasury Weighted Average Rates
For Plan Years Beginning In30-Year Treasury Weighted AveragePermissible Range 90% to 105%
August 20264.594.13 to 4.82
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. Section 1.417(e)-1(d)(3) pro-
vides guidelines for determining the min-
imum present value segment rates. Pursu-
ant to that section, the minimum present
value segment rates determined for July
2026 are as follows:
Minimum Present Value Segment Rates
Month First Segment Second Segment Third Segment
July 2026 4.62 5.62 6.51
DRAFTING INFORMATION
The principal author of this notice
is Tom Morgan of the Office of Associ-
ate 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 Tony Montanaro at
626-927-1475 (not toll-free calls).
Bulletin No. 2026–38 315 September 14, 2026

September 14, 2026 316 Bulletin No. 2026–38
Table 2026-7
Monthly Yield Curve for July 2026
Derived from July 2026 Data
MaturityYieldMaturityYieldMaturityYieldMaturityYieldMaturityYield
0.54.1620.56.0940.56.5660.56.6880.56.74
1.04.3321.06.1141.06.5661.06.6881.06.74
1.54.4721.56.1341.56.5761.56.6881.56.74
2.04.5822.06.1642.06.5762.06.6882.06.74
2.54.6622.56.1842.56.5862.56.6982.56.74
3.04.7223.06.2043.06.5863.06.6983.06.74
3.54.7623.56.2243.56.5863.56.6983.56.74
4.04.7924.06.2444.06.5964.06.6984.06.75
4.54.8324.56.2644.56.5964.56.6984.56.75
5.04.8825.06.2845.06.5965.06.6985.06.75
5.54.9325.56.3045.56.6065.56.7085.56.75
6.04.9826.06.3246.06.6066.06.7086.06.75
6.55.0426.56.3446.56.6066.56.7086.56.75
7.05.1027.06.3547.06.6167.06.7087.06.75
7.55.1627.56.3747.56.6167.56.7087.56.75
8.05.2228.06.3948.06.6168.06.7088.06.75
8.55.2828.56.4048.56.6268.56.7188.56.75
9.05.3429.06.4149.06.6269.06.7189.06.76
9.55.4029.56.4249.56.6269.56.7189.56.76
10.05.4530.06.4350.06.6370.06.7190.06.76
10.55.5130.56.4450.56.6370.56.7190.56.76
11.05.5531.06.4551.06.6371.06.7191.06.76
11.55.6031.56.4651.56.6471.56.7191.56.76
12.05.6432.06.4652.06.6472.06.7292.06.76
12.55.6832.56.4752.56.6472.56.7292.56.76
13.05.7233.06.4853.06.6473.06.7293.06.76
13.55.7633.56.4853.56.6573.56.7293.56.76
14.05.7934.06.4954.06.6574.06.7294.06.76
14.55.8234.56.5054.56.6574.56.7294.56.76
15.05.8535.06.5055.06.6575.06.7295.06.77
15.55.8735.56.5155.56.6675.56.7395.56.77
16.05.9036.06.5156.06.6676.06.7396.06.77
16.55.9236.56.5256.56.6676.56.7396.56.77
17.05.9537.06.5257.06.6677.06.7397.06.77
17.55.9737.56.5357.56.6677.56.7397.56.77
18.05.9938.06.5358.06.6778.06.7398.06.77
18.56.0138.56.5458.56.6778.56.7398.56.77
19.06.0339.06.5459.06.6779.06.7399.06.77
19.56.0539.56.5559.56.6779.56.7499.56.77
20.06.0740.06.5560.06.6880.06.74100.06.77

Bulletin No. 2026–38 317 September 14, 2026
Part IV
Notice of Proposed
Rulemaking
Guidance on Eligible
Investments for Trump
Accounts
CC-00349938-26
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemak-
ing.
SUMMARY: This document contains
proposed regulations relating to Trump
accounts. The proposed regulations
would provide guidance regarding eligi-
ble investments, which are the only assets
in which Trump account funds may be
invested before the first day of the calen-
dar year in which the account beneficiary
attains age 18. The proposed regulations
would affect account beneficiaries and
trustees of Trump accounts.
DATES: Written or electronic comments
and requests for a public hearing must be
received by October 20, 2026.
ADDRESSES: Commenters are strongly
encouraged to submit public comments
electronically via the Federal eRulemak-
ing Portal at https://www.regulations.gov
(indicate IRS and CC-00349938-26) by
following the online instructions for sub-
mitting comments. In accordance with 5
U.S.C. 553(b)(4), a summary of this pro-
posed rule is also available on the Federal
eRulemaking Portal. Requests for a public
hearing must be submitted as prescribed
in the “Comments and Requests for a
Public Hearing” section. Once submitted
to the Federal eRulemaking Portal, com-
ments cannot be edited or withdrawn. The
Department of the Treasury (Treasury
Department) and the IRS will publish for
public availability any comments sub-
mitted to the IRS’s public docket. Send
paper submissions to: CC:PA:01:PR (CC-
00349938-26), room 5503, Internal Reve-
nue Service, P.O. Box 7604, Ben Franklin
Station, Washington, DC 20044.
FOR FURTHER INFORMATION
CONTACT: Concerning the proposed
regulations, Justin R. Karlin at (202) 317-
6842; concerning submissions of com-
ments or a public hearing, the Publications
and Regulations Section at (202) 317-
6091 (not toll-free numbers) or by email
at publichearings@irs.gov (preferred).
SUPPLEMENTARY INFORMATION:
Authority
This document contains proposed reg-
ulations under section 530A of the Inter-
nal Revenue Code (Code) that would
amend the Income Tax Regulations (26
CFR part 1). The proposed regulations
are issued under the express delegation
of authority provided in section 530A(b)
(3)(A)(iv), which authorizes the Secretary
of the Treasury or the Secretary’s delegate
(Secretary) to specify criteria (in addition
to those listed in section 530A(b)(3)(A))
that a mutual fund or exchange traded
fund must meet to be an eligible invest-
ment. The proposed regulations are also
issued under the express delegation of
authority under section 530A(g)(3), which
provides that in selecting the trustee of a
Trump account created or organized by
the Secretary, the Secretary shall take
into account the costs imposed by the
trustee on the account or the account ben-
eficiary. Finally, the proposed regulations
are issued under the express delegation
of authority under section 7805(a) of the
Code, which authorizes the Secretary to
“prescribe all needful rules and regula-
tions for the enforcement of [the Code],
including all rules and regulations as may
be necessary by reason of any alteration of
law in relation to internal revenue.”
Background
I. Statutory provisions
Section 70204 of Public Law 119-21,
139 Stat. 72 (July 4, 2025), commonly
referred to as the One, Big, Beautiful Bill
Act, added new sections 530A, 128, and
6434 to the Code. Section 530A provides
for the establishment of a Trump account
for an eligible individual. Section 128 pro-
vides rules for employer contributions to
a Trump account. Section 6434 provides
rules for a one-time $1,000 pilot program
contribution by the Secretary to the Trump
account of an eligible child with respect to
whom an election is made under section
6434.
A Trump account is an individual retire-
ment account (as defined in section 408(a))
(IRA) not designated as a Roth IRA that is
established for the exclusive benefit of an
eligible individual (as defined in section
530A(b)(2)) or such eligible individual’s
beneficiaries under section 530A. Special
rules apply to the Trump account during
the period that begins when an initial
Trump account is first established for an
account beneficiary (as defined in section
530A(b)(4)) and ends on December 31
of the calendar year in which the account
beneficiary reaches the age of 17 (the
growth period). The special rules concern
contributions, investments, distributions,
and reporting. After the growth period,
most of the special rules no longer apply,
and the rules under section 408 governing
traditional IRAs generally apply.
The definition of a Trump account in
section 530A(b)(1)(C)(iii) provides that
the written governing instrument creat-
ing the Trump account must meet several
requirements, one of which is that no part
of the account funds will be invested in
any asset other than an eligible investment
during the growth period.
Section 530A(b)(3)(A) provides that
the term eligible investment means any
mutual fund or exchange traded fund that
tracks the returns of a qualified index,
does not use leverage, does not have
annual fees and expenses of more than 0.1
percent of the balance of the investment in
the fund, and meets such other criteria as
the Secretary determines appropriate for
purposes of section 530A.
Section 530A(b)(3)(B) provides that
the term qualified index means the Stan-
dard and Poor’s 500 stock market index,
or any other index that is comprised of
equity investments in primarily United

September 14, 2026 318 Bulletin No. 2026–38
States (U.S.) companies, and for which
regulated futures contracts (as defined in
section 1256(g)(1)) are traded on a quali-
fied board or exchange (as defined in sec-
tion 1256(g)(7)). Section 530A(b)(3)(B)
provides that such term shall not include
any industry or sector-specific index, but
may include an index based on market
capitalization.
II. Published guidance
Notice 2025-68, 2025-52 IRB 856,
informed taxpayers that the Treasury
Department and the IRS intend to pro-
pose regulations on Trump accounts. The
notice described guidance expected to
be included in the proposed regulations
in the form of answers to specific ques-
tions, including questions about eligible
investments. Notice 2025-68 requested
comments, with a comment period that
ended February 20, 2026, and comments
received in response to the notice are dis-
cussed below.
On March 9, 2026, the Treasury
Department and the IRS published a
notice of proposed rulemaking (REG-
117270-25) in the Federal Register (91
FR 11194) on the general requirements
for Trump accounts, certain definitions
relating to Trump accounts, rules regard-
ing the election to open an initial Trump
account, and rules regarding the respon-
sible party for the initial Trump account.
On the same day, the Treasury Department
and the IRS also published a notice of pro-
posed rulemaking (REG-117002-25) in
the Federal Register (91 FR 11203) on
making an election under section 6434
for the Trump account of an eligible child
to receive a $1,000 pilot program con-
tribution. This document proposes rules
regarding eligible investments that imple-
ment section 530A(b)(1)(C)(iii) and (b)
(3). The Treasury Department and the IRS
anticipate proposing other rules under sec-
tion 530A at a future date.
Explanation of Provisions
Proposed § 1.530A-3 would pro-
vide guidance relating to eligible invest-
ments for Trump accounts. The guidance
includes proposed definitions related to
eligible investments, rules for determin-
ing whether an investment is an eligible
investment, and rules on how a trustee
1

of a Trump account ensures that a Trump
account meets requirements concerning
eligible investments.
I. Determining whether an investment is
an eligible investment
Proposed § 1.530A-3(b) would pro-
vide definitions of terms for purposes of
section 530A(b)(1)(C)(iii) and (b)(3).
The definitions of eligible investment
in proposed § 1.530A-3(b)(1) and quali-
fied index in proposed § 1.530A-3(b)(5)
restate the definitions in section 530A(b)
(3)(A) and (B).
A. Form of entity
Under section 530A(b)(3)(A), an eli-
gible investment must be either a mutual
fund or an exchange traded fund (ETF).
Neither mutual fund nor ETF is defined in
the Code. Notice 2025-68, in question and
answer (Q&A) D-1, contained definitions
of both terms intended to be consistent
with their ordinary meanings.
One stakeholder recommended that
the definition of ETF be revised so that
it would include ETF share classes of
mutual funds. The Treasury Department
and the IRS agree with the recommenda-
tion because ETF share classes are within
the category of investments ordinarily
referred to as ETFs.
Under proposed § 1.530A-3(b)(2), an
ETF would be defined as a domestic cor-
poration (including a regulated invest-
ment company (RIC)) that is registered
under the Investment Company Act of
1940, Public Law 76-768, 54 Stat. 789
(the 1940 Act), as amended, and that is
either (i) an “exchange-traded fund” as
defined for purposes of the 1940 Act in
17 C.F.R. § 270.6c-11(a)(1) or (ii) an
entity that operates in substantially the
same manner as an exchange-traded fund
but that is not described in 17 C.F.R.
§ 270.6c-11(a)(1), such as a unit invest-
ment trust or ETF share class of a mutual
fund operating as an ETF under exemp-
tive relief granted by the Securities and
Exchange Commission.
Like Notice 2025-68, proposed
§ 1.530A-3(b)(4) would provide that the
term mutual fund means a domestic cor-
poration (including a RIC) that is regis-
tered under the 1940 Act as an open-end
company (as defined in 15 U.S.C. § 80a-
5(a)(1)) and that is not an ETF. Proposed
§ 1.530A-3(b)(3) would define the term
investment fund to mean a mutual fund or
an ETF.
B. Tracks the returns of a qualified index
Section 530A(b)(3)(A)(i) provides
that, to be an eligible investment, a
mutual fund or ETF must track the
returns of a qualified index. Notice 2025-
68 (Q&A D-2) stated that a mutual fund
or ETF tracks the returns of an index if
its investment objective is to provide
investment results that, before fees and
expenses, replicate the performance of
the index, and the fund holds investments
that are reasonably expected to accom-
plish that objective (by, for example,
holding shares of all of the stocks that are
constituents of the index in proportion to
their weightings).
A stakeholder recommended that
guidance emphasize that the standard is
a requirement to seek to replicate index
returns, rather than to eliminate all devi-
ations of fund performance from index
performance. The Treasury Department
and the IRS confirm that the reference to
the fund’s objective is intended to require
a fund to seek to replicate the returns of
an index.
The stakeholder also recommended
clarifying that an investment fund intend-
ing to replicate the returns of an index is
not always required to hold all the under-
lying stocks included in its chosen index.
An investment fund may hold less than
all of the components of an index and
still closely track the index’s returns. The
Treasury Department and the IRS agree
that tracking the returns of an index does
not require holding each component of
the index. The example in the notice was
illustrative and not an additional require-
ment, and proposed § 1.530A-3(c)(1)
would acknowledge the possibility of
tracking the returns of an index by holding
less than all of its components.
1
A reference to a trustee includes a custodian of an IRA that is a section 408(h) custodial account.

Bulletin No. 2026–38 319 September 14, 2026
Notice 2025-68 (Q&A D-2) also
described investment objectives and strat-
egies that are not consistent with tracking
the returns of an index: an objective to
provide investment results inverse to the
performance of the index or a strategy to
outperform or perform differently from the
index. As examples of the latter, the notice
described funds that increase or decrease
exposure to some index constituents based
on the judgment of advisors, or that hold
assets in some or all market conditions
intended to decrease or increase the vol-
atility, risk, or current income associated
with the index.
Stakeholders have asked whether
actively managed investment funds pur-
suing a strategy other than seeking to
replicate the performance of a particular
index can be eligible investments. Invest-
ing Trump account funds in an investment
fund that does not track the returns of an
index would be directly contrary to sec-
tion 530A(b)(3)(A)(i). These proposed
regulations would follow section 530A(b)
(3)(A)(i), under which an investment fund
that is actively managed is not an eligible
investment.
One stakeholder expressed concern
that the discretion exercised by managers
or advisors of typical index funds would
prevent those funds from being eligible
investments under the standards described
in the notice. Managers or advisors exer-
cise discretion in pursuing their objective
to replicate the returns of an index, includ-
ing determining which index components
to hold and when to execute trades. The
stakeholder suggested that the language
of the notice describing increased or
decreased exposure to index constituents
based on the judgment of advisors might
be read as disqualifying an investment
based on these or similar exercises of dis-
cretion. The Treasury Department and the
IRS acknowledge this concern. Accord-
ingly, proposed § 1.530A-3(c)(2) would
exclude the reference to the discretion of
advisors, so that advisors can make nec-
essary decisions in pursuit of a fund’s
objective to replicate the performance of
an index.
The stakeholder also suggested that the
reference to strategies used to “outper-
form” an index be eliminated as unneces-
sary in light of the more general reference
to strategies used to “perform differently”
from the index. The word “outperform” is
intended to clarify that an objective to per-
form differently from an index includes an
objective to outperform the index. There-
fore, the proposed regulations do not
reflect this suggestion.
One stakeholder asked for clarification
regarding whether an investment fund
may engage in securities lending to gen-
erate additional income while still being
considered to track the returns of an index.
Income from securities lending may be
viewed as inconsistent with the general
principle in proposed § 1.530A-3(c)(2)
that an eligible investment may not use
a strategy to perform differently from the
relevant index, because securities lending
generally increases the current income
of the fund. Securities lending, however,
appears to be consistent with the language
and purposes of section 530A(b)(3). The
statute does not mention securities lend-
ing, but securities lending by investment
funds is common.
Moreover, an investment fund may
engage in securities lending in a way that
allows the fund to retain all of the eco-
nomic benefits and burdens associated
with the affected security. Section 1058(b)
describes conditions under which a secu-
rities lending transaction is treated as a
nonrecognition transaction to the lender.
An investment fund that engages in secu-
rities lending continues to provide inves-
tors with passive participation in the per-
formance of the index, so long as the fund
retains its economic exposure to the secu-
rities lent. Therefore, proposed § 1.530A-
3(c)(3) would provide, as an exception to
the general rule in proposed § 1.530A-
3(c)(2), that an investment fund does
not fail to track the returns of an index
because the investment fund engages in
securities lending transactions so long as
the fund retains full economic exposure to
the securities lent.
Stakeholders requested clarification
regarding whether a fund of funds may be
an eligible investment. A fund of funds is
an investment fund that invests in other
investment funds (acquired funds). One
stakeholder recommended that a fund of
funds tracking multiple indices through
its acquired funds be treated as tracking
the returns of a qualified index. Section
530A(b)(3)(A)(i) requires an eligible
investment to track the returns of “a qual-
ified index” (emphasis added). A fund of
funds that tracks multiple indices is not
described in section 530A(b)(3)(A)(i).
Providing rules to allow an eligible invest-
ment to track multiple indices would also
add unnecessary complexity. Therefore,
these proposed regulations would not treat
any fund, including a fund of funds, that
replicates the returns of multiple indices
as an eligible investment. However, noth-
ing in these proposed regulations would
preclude a fund of funds from being an
eligible investment if it tracks a single
index and meets all of the other require-
ments in section 530A(b)(3).
C. Does not use leverage
Section 530A(b)(3)(A)(ii) provides
that, to be an eligible investment, a mutual
fund or ETF must not use leverage. Notice
2025-68 (Q&A D-3) stated that a mutual
fund or ETF is considered to use leverage
if, as a result of the fund’s use of borrow-
ings, derivatives, or other strategies that
are economically equivalent to borrow-
ings, a percentage change in the level
of an index tends to cause a materially
greater percentage change in the value of
the fund’s portfolio.
A stakeholder suggested that the lever-
age standard is unnecessary, because any
fund using leverage as described in Q&A
D-3 would also be failing to track the
returns of an index under Q&A D-2. The
stakeholder also explained that investment
funds may use borrowing or their equiva-
lents to gain efficient exposure to only a
portion of the underlying index and that
this practice, if assessed in isolation, may
lead to material variations in the portfo-
lio as compared to the performance of
the underlying index. The stakeholder
suggested that leverage should disqualify
an investment fund only if the fund’s bor-
rowings or economic equivalents in their
totality is inconsistent with the fund’s
investment objective of seeking to track
the returns of a qualified index.
The Treasury Department and the IRS
recognize that the requirements in section
530A(b)(3)(A) to track the returns of an
index and not to use leverage are closely
related, and that in Notice 2025-68, the
standard for leverage (Q&A D-3) substan-
tially overlaps with the standard for track-
ing the returns of an index (Q&A D-2).

September 14, 2026 320 Bulletin No. 2026–38
The alternative standard proposed by the
stakeholder, however, would deprive the
leverage provision of any significance
because any fund excluded for use of
leverage under that alternative standard
would also be excluded for not tracking
the returns of a qualified index. The Trea-
sury Department and the IRS, however,
agree with the stakeholder that the stat-
utory exclusion of funds using leverage
should not be read to restrict the trans-
actions that regular index funds (those
not seeking to multiply or magnify index
changes) typically use to gain efficient
exposure to an index. The statutory exclu-
sion of investment funds that use leverage
should be read to exclude the higher-risk
leveraged funds that are less suitable for
many Trump account beneficiaries. There-
fore, these proposed regulations would
define leverage by reference to increased
risk.
Proposed § 1.530A-3(d)(1) would
provide that an investment fund is con-
sidered to use leverage if the fund uses
borrowings, derivatives, or other strat-
egies that are economically equivalent
to borrowings in a way that materially
increases the risk of loss associated with
an investment in the investment fund.
Under this standard, as under Notice
2025-68, an investment fund uses lever-
age if, as a result of borrowings or deriv-
atives or another economic equivalent,
a change in the level of the index the
returns of which the fund seeks to rep-
licate tends to cause a materially greater
proportional change in the net value of
the fund’s portfolio. Consistent with the
stakeholder’s recommendation, this stan-
dard requires an inquiry into risk associ-
ated with the fund as a whole and not one
transaction in isolation.
Notice 2025-68 explained that bor-
rowings and derivatives not entered into
to multiply or magnify index returns gen-
erally would not be treated as leverage.
The notice included as examples borrow-
ings to provide liquidity for redemptions
or for purchases of portfolio securities in
connection with investment flows into the
fund, and entering into derivatives as part
of a fund’s strategy to replicate the perfor-
mance of an index.
Like Notice 2025-68, these proposed
regulations would describe uses of bor-
rowings and derivatives that would not be
expected to constitute the use of leverage
for purposes of section 530A(b)(3)(A)(ii).
Under the proposed regulations, however,
whether any use of borrowings or deriva-
tives constitutes the use of leverage would
depend on whether it materially increases
risk of loss. Proposed § 1.530A-3(d)(2)
would provide that an investment fund
is not considered to use leverage merely
because it borrows or uses derivatives as
part of its strategy to replicate the per-
formance of an index, so long as the bor-
rowings or derivatives do not materially
increase the risk of loss associated with an
investment in the investment fund. Thus,
an investment fund is not considered to
use leverage merely because the fund
incurs short-term borrowings to provide
liquidity for redemptions or to purchase
portfolio securities in connection with
investment flows into the fund or because
the fund uses derivatives to gain synthetic
exposure to certain index components.
For an investment fund that engages in
securities lending, proposed § 1.530A-
3(d)(2) would provide that the investment
fund’s obligation to return collateral to the
borrower of the securities is not treated as
leverage so long as the investment fund
takes appropriate steps to limit the risk
of loss with respect to the collateral. To
limit the risk of loss with respect to cash
collateral, the investment fund must hold
the collateral in cash or highly liquid,
conservative positions (like money mar-
ket funds). To limit the risk of loss with
respect to non-cash collateral, the invest-
ment fund must not sell the collateral or
otherwise use the collateral (for exam-
ple, by pledging it) to increase the fund’s
exposure to other assets.
D. Qualified index
Section 530A(b)(3)(B) provides that a
qualified index is the Standard and Poor’s
500 stock market index, or any other index
that is comprised of equity investments in
primarily U.S. companies and for which
regulated futures contracts (as defined in
section 1256(g)(1)) are traded on a quali-
fied board or exchange (as defined in sec-
tion 1256(g)(7)). Section 530A(b)(3)(B)
also provides that a qualified index does
not include any industry or sector-specific
index but may include an index based on
market capitalization.
Q&A D-5 in Notice 2025-68 stated that
an index is considered to be comprised of
equity investments if the index is com-
prised entirely of stocks and similar own-
ership interests in the form of partnership
or membership interests.
Several stakeholders requested guid-
ance that would allow an index with debt
instruments as components to be a qual-
ified index. Section 530A(b)(3)(B)(ii)
(I) requires a qualified index to be “com-
prised of equity investments in primarily
[U.S.] companies.” It is consistent with
that statutory language for a qualified
index to include some equity investments
in non-U.S. companies, but not for a qual-
ified index to include components other
than equity investments. Accordingly,
proposed § 1.530A-3(e)(5) would contain
the same all-equity requirement as the
notice.
One stakeholder recommended that
a qualified index include a total-market
index. While the term total-market may
have different meanings, an index that
represents an equity market broadly,
including large-cap, mid-cap, and small-
cap companies, may be a qualified index
if the index meets the requirements in
proposed § 1.530A-3(e). (For example,
a regulated futures contract on the index
must be traded on a qualified board or
exchange and the index must be com-
prised of equity investments in primarily
U.S. companies.)
Q&A D-5 stated that a company is a
U.S. company if it is domestic under sec-
tion 7701(a)(4). It also included a safe har-
bor under which an index would be treated
as comprised of equity investments in pri-
marily U.S. companies if U.S. companies
represent at least 90 percent of the index
based on their weightings in the index.
Stakeholders suggested that the 90-per-
cent standard in the safe harbor was a
higher threshold than what the statutory
language suggests. The Treasury Depart-
ment and the IRS note that a variety of
provisions in the Code use “primarily”
without providing a numerical threshold.
A safe harbor provides certainty for some
indices, so that the Standard and Poor’s
500 stock market index is not the only
index assured of meeting the standard.
Thus, proposed § 1.530A-3(e)(7) would
retain the 90-percent safe harbor approach
of the notice.

Bulletin No. 2026–38 321 September 14, 2026
Q&A D-6 in Notice 2025-68 stated
that an index is industry-specific or sec-
tor-specific if the inclusion of a company
depends on the kind of business or indus-
try in which the company is engaged.
Stakeholders did not comment on that
aspect of the qualified index requirement,
and proposed § 1.530A-3(e)(2) would
provide substantially the same rule. Under
proposed § 1.530A-3(e)(1), whether an
index is industry-specific or sector-spe-
cific would be determined by reference
to the index methodology for the index.
Proposed § 1.530A-3(e)(1) would require
a qualified index to have a publicly avail-
able index methodology that describes the
criteria for inclusion in the index and the
construction of the index.
Q&A D-6 also provided that environ-
mental, social, and governance (ESG)
indices are sector-specific. A stakeholder
recommended that an index that has cri-
teria for inclusion based on ESG factors
not be described as a sector-specific index.
The stakeholder explained that describing
an ESG index as a sector-specific index
may generate confusion about the mean-
ing of the term as it is used in other con-
texts.
The Treasury Department and the IRS
acknowledge that describing an ESG
index as a sector-specific index could gen-
erate confusion about the meaning of the
term. Accordingly, proposed § 1.530A-
3(e)(3) would not describe an ESG index
as a sector-specific index. Nevertheless,
the Treasury Department and the IRS
have determined that it is appropriate to
exclude investment funds that track ESG
indices because they limit exposure to
companies in a way that makes them sim-
ilar to sector-specific funds. Accordingly,
under the authority provided in section
530A(b)(3)(A)(iv), proposed § 1.530A-
3(e)(3) would provide that any invest-
ment fund that tracks the returns of an
ESG index is not an eligible investment.
Proposed § 1.530A-3(e)(3) would further
provide that an ESG index includes any
index that has, or is marketed as having, a
focus on environmental, social, or gover-
nance factors.
Q&A D-6 also defined an index based
on market capitalization, the substance
of which would remain unchanged in
the proposed regulations. Proposed
§ 1.530A-3(e)(4) would provide that an
index is based on market capitalization if
the inclusion of a company in the index
depends on the company having a market
capitalization within a specified range or
over or under a specified threshold, or that
meets specified ranking criteria.
E. Limit on annual fees and expenses
Section 530A(b)(3)(A)(iii) provides
that, to be an eligible investment, a mutual
fund or ETF must not have annual fees
and expenses of more than 0.1 percent of
the balance of the investment in the fund.
Q&A D-4 in Notice 2025-68 stated
that an investment fund would meet the
requirements of section 530A(b)(3)(A)
(iii) if the sum of its annual fees and its
annual expenses is not more than 0.1 per-
cent of the value of the fund’s net assets.
Q&A D-4 in Notice 2025-68 described a
fund’s annual fees as including any annual
or recurring fees charged by the fund
directly to the investor, as disclosed in a
fund’s prospectus. The notice requested
comments on the appropriate treatment of
fees charged for transactions.
A stakeholder recommended that all
amounts that are not part of an investment
fund’s expense ratio, including transac-
tional fees such as sales charges, loads,
and redemption fees, be excluded from a
fund’s fees and expenses for purposes of
section 530A(b)(3)(A)(iii). Excluding all
fees is inconsistent with the language in
section 530A(b)(3)(A)(iii), which lim-
its “fees and expenses.” Both fees and
expenses reduce the real returns to inves-
tors. Excluding transactional fees appears
to be similarly inconsistent with the lan-
guage and purposes of section 530A(b)
(3)(A)(iii), because an investment fund’s
fees may be entirely transactional fees and
such fees reduce real returns to investors.
Moreover, investment funds can structure
their fees in a variety of ways. A rule that
excludes some fees from the limit in sec-
tion 530A(b)(3)(A)(iii) based on the form
of the fees would create an incentive for
investment funds to charge or increase
that form of fee. Therefore, the limit on
fees and expenses should apply to recur-
ring fees (as under the notice) and other
fees (on which the notice requested com-
ments).
Proposed § 1.530A-3(f)(1) would pro-
vide that an investment fund is not an eli-
gible investment if the sum of its annual
fees and annual expenses is more than
0.1 percent of the net value of its assets.
Amounts charged by investment funds
directly to investment fund holders are
referred to as fees and addressed in pro-
posed § 1.530A-3(f)(2). Amounts borne
by investment fund holders indirectly in
the form of costs incurred by investment
funds are referred to as expenses and
addressed in proposed § 1.530A-3(f)(3).
Proposed § 1.530A-3(f)(2)(ii) would
provide that an investment fund’s fees
include all amounts that the fund charges
its investment fund holders directly, with-
out regard to how such amounts are com-
puted, when they are imposed, or how
such amounts are referred to in securities
filings or marketing materials. Under pro-
posed § 1.530A-3(f)(2)(i), the amount of
an investment fund’s annual fees would
generally be the aggregate amount of fees
imposed by the investment fund during the
most recent fiscal year (for purposes of the
fund’s securities filings) that has appeared
in the fund’s prospectus, expressed as a
percentage of the investment fund’s aver-
age net asset value for that fiscal year. If
an investment fund’s prospectus discloses
changes to the fund’s fee structure that
would increase the annual fee amount, the
computation must take into account the
change to the fee structure.
Q&A D-4 in Notice 2025-68 indicated
that annual fees and annual expenses will
not include any amount that is paid to a
broker or intermediary and that is not
specified or imposed by or on behalf of
the fund.
Stakeholders recommended that guid-
ance clarify the treatment of charges not
imposed by an investment fund, including
custodial fees or fees to cover the adminis-
trative and reporting costs associated with
a Trump account. One stakeholder pointed
out that mutual fund account fees would be
treated as fees of the mutual fund, result-
ing in differing treatment for mutual funds
and ETFs. Another stakeholder requested
clarification that amounts paid for advice
or planning services are not subject to the
0.1 percent limit.
The 0.1 percent limit in section 530A(b)
(3)(A)(iii) is part of the definition of an eli-
gible investment. The limit does not apply
to trustee fees. Therefore, custodial fees or
similar charges that are associated with a

September 14, 2026 322 Bulletin No. 2026–38
Trump account itself rather than with any
particular investment fund are analyzed as
trustee fees, which are discussed later in
this preamble. If an account beneficiary
pays an amount to an advisor for advice
on whether to open a Trump account or
what investment to select, and the advice
and the amount are entirely independent
of any investment fund, then the amount is
not within the scope of the annual fees of
an investment fund. Given the definition
of annual fees, a rule specifically exclud-
ing an amount having no connection to
any fund appears to be unnecessary and
more likely to confuse than clarify the
definition. A sales load, however, is part of
a mutual fund’s annual fees, even though
the amount charged may ultimately bene-
fit a financial intermediary, because it is a
cost of investing in a particular investment
fund.
Proposed § 1.530A-3(f)(2)(iii) would
provide that amounts charged to an
account beneficiary by a trustee for pro-
viding an account are not treated as part
of any investment fund’s annual fees but
as trustee fees. A fee charged by a Trump
account trustee or financial intermediary
for a service, such as carrying out a pur-
chase or sale of an investment fund is not
considered a part of the investment fund’s
fees if the fee is not charged on behalf of
or at the direction of the investment fund,
is not paid (directly or indirectly) to the
investment fund, and is not attributable to
any cost of offering the investment fund.
See part IV of this Explanation of Provi-
sions regarding fees and expenses charged
by a Trump account trustee.
Q&A D-4 in Notice 2025-68 described
a fund’s annual expenses as the amount
set forth in its prospectus as total annual
operating expenses. Investment funds are
already required to compute and report
these amounts. A fund’s total annual oper-
ating expenses is also used to compute the
fund’s expense ratio, which is a metric
that is commonly published and referred
to in comparing investment funds. No
comments were received regarding the
approach to annual expenses in the notice,
and proposed § 1.530A-3(f)(3) would pro-
vide substantially the same rule.
Proposed § 1.530A-3(f)(3) would pro-
vide certain additional clarifications to
aid in the computation of a fund’s total
annual operating expenses. These include
that if an investment fund’s prospectus
lists total operating expenses reduced by
fee waivers or expense reimbursements,
the reduced amount applies for purposes
of section 530A(b)(3)(A)(iii). In addition,
proposed § 1.530A-3(f)(3) would provide
that if an investment fund has multiple
share classes, annual expenses are com-
puted separately for each class, based on
the expenses and assets allocable to each
class.
II. Trustee procedures regarding eligible
investments
Section 530A(b)(1)(C)(iii) provides
that the written governing instrument
creating a Trump account must meet the
requirement that no part of the account
funds will be invested in any asset other
than an eligible investment during the
growth period.
Q&A D-7 of Notice 2025-68 stated that
a trustee must have procedures in place
to monitor and enforce the requirements
of section 530A(b)(1)(C)(iii). The Q&A
stated that it is not sufficient merely for a
written governing instrument of a Trump
account to state the prohibition of sec-
tion 530A(b)(1)(C)(iii); the trustee must
comply with the prohibition. The Q&A
stated that the procedures may, but are not
required to, be in the written governing
instrument.
A stakeholder questioned whether
there is authority for requiring operational
compliance with the eligible investment
requirements for Trump accounts. Section
530A(b)(1)(C) imposes limits by refer-
ence to the written governing instrument
of a Trump account, which cannot be
enforced by the IRS. Therefore, the stake-
holder suggests any failure by a trustee to
follow the written governing instrument is
a contractual violation enforceable by the
account beneficiary.
The Treasury Department and the IRS
interpret the language of section 530A(b)
(1)(C) as requiring not just specific lan-
guage to be contained in the written gov-
erning instrument but also as requiring
operational compliance with the language
set forth in the written governing instru-
ment. The trustee is in the best position to
ensure that an account meets requirements
of section 530A(b)(1)(C), which concern
contributions, distributions, and invest-
ments. Thus, the trustee must structure
its operations to ensure the account meets
the requirements. Without such an opera-
tional compliance requirement, the writ-
ten instrument is not, in fact, the written
governing instrument.
This approach of requiring operational
compliance with Code requirements in the
written governing instrument is consistent
with how the Treasury Department and
the IRS have interpreted statutory rules
for section 401(a) plans that, on their face,
could be read to suggest only a require-
ment that needs to be set forth in a plan
document. For example, section 401(a)(9)
provides that “[a] trust shall not consti-
tute a qualified trust under this subsection
unless the plan provides that the entire
interest of each employee” will be dis-
tributed in accordance with section 401(a)
(9)(A) (emphasis added). The Treasury
Department and the IRS have interpreted
this language as requiring operational
compliance in order to maintain qualified
plan status under section 401(a).
Proposed § 1.530A-3(g) would provide
procedures for a trustee to follow to ensure
that Trump account funds are invested in
accordance with section 530A(b)(1)(C)
(iii), including for selection of eligible
investments and default eligible invest-
ments, situations in which funds tempo-
rarily need not be invested in an eligible
investment, and monitoring of investment
funds. Many of these procedures involve
an account beneficiary, who generally will
have another person acting on their behalf
while they are a minor.
Proposed § 1.530A-3(g)(2) would pro-
vide that the written governing instrument
must include the procedures described in
proposed § 1.530A-3(g)(4), (5), and (7).
Proposed § 1.530A-3(g)(3) would clarify
that if an account does not comply with
section 530A(b)(1)(C)(iii), taking into
account the flexibility added by proposed
§ 1.530A-3(g), the account will cease to
be a Trump account and cease to be an
IRA.
Q&A D-7 of Notice 2025-68 also
stated that these procedures with respect
to the growth period must include at least
that the trustee must offer only eligible
investments as investment options for a
Trump account, and the trustee must select
a default eligible investment and must
promptly invest any uninvested funds in

Bulletin No. 2026–38 323 September 14, 2026
the default eligible investment, unless
directed by or on behalf of the account
beneficiary to invest the funds in a differ-
ent eligible investment.
Stakeholders sought clarification
regarding default eligible investments,
including whether a trustee may have only
one default eligible investment, whether
any eligible investment may be the default
eligible investment, and whether an
account beneficiary may specify another
eligible investment as the designated eligi-
ble investment for that particular account
beneficiary.
Proposed § 1.530A-3(g)(4)(i) would
provide that a trustee must limit invest-
ments available for Trump account invest-
ments to investment funds that the trustee
has determined are eligible investments.
Proposed § 1.530A-3(g)(4)(ii) would
provide that a trustee must establish for
each Trump account under the trustee’s
administration a default eligible invest-
ment in which all contributions, proceeds
from sales or other dispositions, and any
other amounts for investment (other than
amounts addressed by proposed § 1.530A-
3(g)(4)(iii)) will be invested unless the
account beneficiary specifies that the
Trump account be invested in a different
eligible investment for the contribution or
other amount. Proposed § 1.530A-3(g)(4)
(ii) also would provide that the default eli-
gible investment can be a single eligible
investment or a combination of eligible
investments in specified proportions, and
that the default eligible investment(s) must
be clearly disclosed to account beneficia-
ries. Proposed § 1.530A-3(g)(4)(ii) would
provide that the requirement to establish a
default eligible investment does not pre-
clude arrangements between a trustee and
the account beneficiary that give effect to
different preferences on an ongoing basis.
Proposed § 1.530A-3(g)(4)(iii) would
provide that the trustee of a Trump account
must disclose to the account beneficiary
how amounts received as dividends or
other distributions from eligible invest-
ments will be invested unless the account
beneficiary gives different instructions
regarding the dividends and distributions.
For example, amounts received as div-
idends and distributions might be rein-
vested in the same eligible investments
that paid the dividends or other distribu-
tions or invested in the Trump account’s
default eligible investment. Proposed
§ 1.530A-3(g)(4)(iii) would also provide
that the trustee may give effect to direc-
tions from the account beneficiary that a
specific distribution, or distributions gen-
erally, be invested in a different way that
complies with section 530A(b)(1)(C)(iii).
Q&A D-8 of Notice 2025-68 stated
that, during the growth period, the trust-
ee’s procedures may not permit funds in a
Trump account to be invested in a money
market fund but may permit an amount
received as a contribution, a dividend or
other distribution from an eligible invest-
ment, or an amount received as a result
of a disposition (such as sale) of an eligi-
ble investment, to be held in cash for the
time reasonably necessary to complete the
investment of the amount in an eligible
investment.
Stakeholders recommended that
amounts should be permitted to be held in
cash for the time reasonably necessary to
complete a distribution, rollover, or pay-
ment of fees. Proposed § 1.530A-3(g)(5)
(i) would provide that a trustee may permit
an amount received in a Trump account
as cash, such as an amount received as a
contribution, proceeds of a sale or other
disposition, or a distribution, to be held
in cash for the time reasonably necessary
to complete an investment, reinvestment,
distribution, rollover, payment of fees, or
other transaction permitted under section
530A.
Q&A D-9 of Notice 2025-68 stated
that, during the growth period, the trust-
ee’s procedures must require reason-
able ongoing monitoring by the trustee
regarding whether a fund held by a Trump
account continues to be an eligible invest-
ment. This Q&A also stated that in the
event that a fund held by a Trump account
ceases to be an eligible investment during
the growth period, the Trump account will
no longer be permitted to be invested in
such fund.
Stakeholders made a variety of recom-
mendations and sought clarification with
respect to the trustee’s obligation to mon-
itor the status of its existing investments
as eligible investments. These recommen-
dations include providing a safe harbor
regarding when a trustee would be treated
as satisfying its obligations relating to
monitoring investment funds. For exam-
ple, one stakeholder recommended that
trustee monitoring be based on periodic
review and reliance on public disclosures.
Stakeholders also recommended a 120-
day grace period for a fund to regain eli-
gible investment status (by, for example,
adjusting its fees and expenses) or for the
trustee to dispose of shares in the fund and
reinvest the proceeds in an eligible invest-
ment.
The Treasury Department and the IRS
recognize that day-to-day monitoring by a
trustee regarding whether an investment
fund continues to be an eligible invest-
ment raises significant practical concerns.
The Treasury Department and the IRS
agree with stakeholders that a safe harbor
requiring trustees to make periodic deter-
minations regarding eligible investment
status would be more administrable for
trustees.
Proposed § 1.530A-3(g)(6) would
require that the trustee’s procedures pro-
vide for monitoring of investment funds
in which the trustee’s Trump accounts
are invested, with an initial determination
whether the investment fund is an eligible
investment when the trustee first offers the
investment fund to any Trump account for
which it is the trustee and then subsequent
periodic determinations that the invest-
ment fund continues to be an eligible
investment. Proposed § 1.530A-3(g)(6)
would provide that the trustee may rely on
an investment fund’s prospectus and other
public documents required by Federal
securities laws in making determinations
of eligible investment status. Proposed
§ 1.530A-3(g)(6) would also provide that
a trustee is treated as monitoring invest-
ment funds in which the trustee’s Trump
accounts are invested if the trustee’s peri-
odic determinations occur at least once
every 12 months.
Proposed § 1.530A-3(g)(5)(ii) would
provide that in the event an investment
fund ceases to be an eligible investment,
the trustee’s procedures must require the
prompt sale or disposition of shares in the
investment fund and the reinvestment of
the proceeds in an eligible investment.
Specifically, proposed § 1.530A-3(g)(5)
(ii)(A) would provide that a trustee must
sell or dispose of shares in the investment
fund and reinvest the proceeds within 30
days of when the investment fund ceases
to be an eligible investment. Proposed
§ 1.530A-3(g)(5)(ii)(B) would provide

September 14, 2026 324 Bulletin No. 2026–38
that the time when an investment fund is
treated as ceasing to be an eligible invest-
ment is determined based on whether the
trustee is in compliance with the monitor-
ing and periodic determination require-
ments in proposed § 1.530A-3(g)(6). If
the trustee is not in compliance with the
monitoring and periodic determination
requirements in proposed § 1.530A-3(g)
(6), the investment fund is treated as ceas-
ing to be an eligible investment on the
first day that the investment fund does
not meet the requirements to be an eligi-
ble investment. If the trustee is in com-
pliance with the monitoring and periodic
determination requirements of proposed
§ 1.530A-3(g)(6), the time of the trustee’s
next periodic determination in accordance
with proposed § 1.530A-3(g)(6) or, if
earlier, the time that the trustee acquires
actual knowledge that the investment is no
longer an eligible investment, is treated as
the time the investment fund ceases to be
an eligible investment. This provision is
intended to address concerns regarding the
timing of identifying and then disposing
of shares in an investment fund expressed
in stakeholders’ requests for specific time
thresholds for dispositions.
Stakeholders discussed what notice a
trustee should be required to provide to
an account beneficiary when an invest-
ment fund in which the account benefi-
ciary’s funds are invested ceases to be
an eligible investment. One stakeholder
contemplated notice to an account ben-
eficiary before the trustee reinvests the
proceeds from the sale of the fund that
ceases to be an eligible investment. The
Treasury Department and the IRS believe
that requiring notice before reinvestment
unnecessarily slows down reinvestment.
Proposed § 1.530A-3(g)(5)(ii) would not
require notice to account beneficiaries
before selling or disposing of shares in the
investment fund but would require notice
to account beneficiaries after reinvestment
of the proceeds about how the proceeds
are reinvested.
Proposed § 1.530A-3(g)(7) would
provide that if a trustee has adopted
the required procedures but a portion
of the assets in a Trump account is not
invested in an eligible investment due to
an administrative error by the trustee (for
example, due to an oversight or mistake
in applying the procedures), the trustee
must sell or dispose of the assets that are
not invested in an eligible investment
and reinvest the proceeds in an eligible
investment within 30 calendar days from
the first day that portion was not invested
in an eligible investment. Furthermore,
the trustee must disclose to the account
beneficiary the duration of the error, the
assets that were held during the error
period, and the amount reinvested in an
eligible investment at the end of the error
period.
Regarding the proposed correction
of administrative errors, the Treasury
Department and the IRS are consider-
ing providing a rule that would allow a
trustee, in the case of its administrative
error, to replace, to the extent needed,
earnings in the account that the account
would have had if the account had been
properly invested in an eligible invest-
ment. Such replaced earnings would not
be considered contributions subject to
the contribution limitation under section
530A(c)(2). Comments are requested
regarding such a rule.
The Treasury Department and the
IRS recognize the importance of helping
account beneficiaries receive the benefits
of a Trump account, particularly because
account beneficiaries are minors. There-
fore, in addition to the proposed correction
procedures included in these proposed
regulations, the Treasury Department and
the IRS request comments regarding other
failures under section 530A(b)(1)(C) that
may be appropriate for correction and pro-
posed corrections for such failures (tak-
ing into account that trustees must have
procedures in place to prevent most such
failures). The Treasury Department and
the IRS intend to provide additional cor-
rection procedures for trustees, as needed,
to correct certain Trump account failures.
Comments are additionally requested
regarding whether potential Trump
account corrections should be included
as part of the IRA correction procedure
authorized under section 305(c) of Public
Law 117-328, 136 Stat. 4459 (December
29, 2022), commonly referred to as the
SECURE 2.0 Act.
Q&A D-10 of Notice 2025-68 stated
that a trustee may permit funds in a Trump
account to be invested in multiple eligible
investments. The Treasury Department
and the IRS confirm that a Trump account
may be invested in any number of eligible
investments, and proposed § 1.530A-3(g)
(1) would provide that Trump account
funds may be invested in one or more eli-
gible investments.
III. Request for Comments Regarding
Stock Contributions as part of a
Philanthropic Contribution
The Treasury Department and the IRS
intend to exercise regulatory authority
conferred by section 530A(a) to issue
regulations that would allow contribu-
tions of readily tradable public company
stock to be made to Trump accounts as
part of a philanthropic contribution. The
regulations would require that the stock
transferred to the Treasury Department
for this purpose must satisfy certain cri-
teria and other requirements to be treated
as a charitable contribution. All other
contributions to Trump accounts would
continue to have to be made in cash
pursuant to section 408(a)(1), and such
funds would continue to be subject to
the requirement in section 530A(b)(1)(C)
(iii) that they cannot be invested in any
asset other than an eligible investment
during the growth period.
IV. Request for Comments Regarding
Trustee Fees
Section 530A is intended to promote
long-term investing for the benefit of chil-
dren. Section 530A contains provisions
designed to maintain a low cost for these
accounts. In particular, section 530A(b)
(3)(A)(iii) limits eligible investments to
those with low annual fees and expenses
and section 530A(g) permits the Secretary
to take into account costs imposed by the
trustee on the account or the account ben-
eficiary when selecting the trustee. Addi-
tionally, commenters and other stake-
holders have expressed concerns with the
potential for fees and expenses to dimin-
ish the account balances over time (espe-
cially given the small initial balances and
long expected holding periods). One com-
menter raised the concept of expressly
prohibiting additional fees because such
fees are not contemplated in the statutory
language.
The Treasury Department and the IRS
are considering ways to keep costs down

Bulletin No. 2026–38 325 September 14, 2026
for these accounts, and request comments
on alternative ways in which this might be
achieved, including the possibility of pro-
hibiting trustees from charging any fees
with respect to the account beneficiary
or the eligible investments held by the
account beneficiary.
Proposed Applicability Dates
The regulations are proposed to apply
to taxable years beginning on or after Jan-
uary 1, 2026, except for paragraph (g) of
the regulations, which is proposed to apply
to taxable years beginning on or after the
date of publication of the Treasury deci-
sion adopting these rules as final regula-
tions in the Federal Register (finalization
date). In accordance with section 7805(b)
(2) of the Code, the Treasury Department
and the IRS intend to publish final reg-
ulations within 18 months of the date of
enactment of section 530A. A taxpayer or
a trustee may rely on the proposed regu-
lations for taxable years beginning before
the finalization date if the taxpayer or
trustee, respectively, follows these pro-
posed regulations in their entirety and in a
consistent manner.
Special Analyses
I. Regulatory Planning and Review
Executive Orders 12866 and 13563
direct agencies to assess costs and ben-
efits of available regulatory alternatives
and, if regulation is necessary, to select
regulatory approaches that maximize net
benefits (including potential economic,
environmental, public health and safety
effects, distributive impacts, and equity).
Executive Order 13563 emphasizes the
importance of quantifying both costs and
benefits, reducing costs, harmonizing
rules, and promoting flexibility.
The proposed regulations have been
designated by the Office of Management
and Budget’s (OMB’s) Office of Infor-
mation and Regulatory Affairs (OIRA)
as subject to review under Executive
Order 12866 pursuant to the Memoran-
dum of Agreement (MOA, July 4, 2025)
between the Treasury Department and the
OMB regarding review of tax regulations.
OIRA has determined that the proposed
rulemaking is significant under section
3(f) of Executive Order 12866 and subject
to review under Executive Order 12866
and section 1(b) of the MOA. Accord-
ingly, the proposed regulations have been
reviewed by OMB. This proposed rule is
not expected to be considered a regula-
tory action under Executive Order 14192
because it does not impose any more than
de minimis regulatory costs.
Need for Regulation
The proposed regulations would pro-
vide guidance relating to eligible invest-
ments for Trump accounts under section
530A. The proposed regulations would
define terms related to eligible invest-
ments, provide rules for determining
whether an investment fund is an eligible
investment, and provide procedures for a
trustee of a Trump account to ensure that
a Trump account meets requirements con-
cerning eligible investments.
The Statute and the Proposed Regulations
Public Law 119-21, commonly
referred to as the One, Big, Beautiful Bill
Act, added new sections 530A, 128, and
6434 to the Code. Section 530A describes
Trump accounts, section 128 describes
certain employer contributions to Trump
accounts, and section 6434 describes the
Trump accounts contribution pilot pro-
gram. The proposed regulations provide
guidance on eligible investments in a
Trump account under section 530A(b)(3).
Section 530A defines a Trump account
as an IRA with some special rules. Most
special rules that distinguish Trump
accounts from other IRAs apply only
during the growth period. The first day of
the growth period is the day the account
is established, and the final day of the
growth period is December 31 of the
calendar year in which the account ben-
eficiary attains age 17. The rules for tra-
ditional IRAs generally apply after the
growth period. A Trump account may be
established for the benefit of a child prior
to the calendar year in which the child
attains age 18 if the child has been issued
a social security number.
In general, distributions from Trump
accounts are not permitted during the
growth period. The entire balance of
a Trump account may be rolled over in
a direct trustee-to-trustee transfer to a
new Trump account of the account ben-
eficiary. The entire balance of a Trump
account may be rolled over in a direct
trustee-to-trustee transfer to an ABLE
account of the account beneficiary in the
calendar year the account beneficiary
attains age 17.
Funds in a Trump account may only
be invested in eligible investments during
the growth period. An eligible investment
generally is a mutual fund or ETF that
tracks an equity index of primarily U.S.
companies, such as the S&P 500 index,
does not use leverage, and has annual fees
and expenses of no more than 0.1 percent
of the balance of the investment in the
fund.
Trump accounts may receive contri-
butions from nonprofits, governments,
employers, and individuals. In general,
contributions to a Trump account are sub-
ject to an annual limit of $5,000, adjusted
for inflation.
Governments and nonprofits may make
qualified general contributions through
the Treasury Department, and such con-
tributions must be allocated in equal
amounts to the Trump accounts of every
account beneficiary in a qualified class.
Qualified general contributions from gov-
ernments and nonprofits through the Trea-
sury Department do not count towards the
$5,000 annual contribution limit.
Section 128 sets rules for certain
employer contributions to Trump accounts.
Employers may contribute to the Trump
account of an employee or an employee’s
dependent. Section 128 employer contri-
butions to a Trump account are excluded
from the employee’s income, up to an
annual limit of $2,500, adjusted for infla-
tion. Section 128 employer contributions
count towards the $5,000 annual contribu-
tion limit.
Section 6434 describes the Trump
accounts contribution pilot program. In
the pilot program, the Secretary will pay
$1,000 to the Trump accounts of eligi-
ble children. A U.S. citizen born in 2025,
2026, 2027, or 2028 who has been issued
a social security number and for whom no
request for a pilot program contribution
has previously been processed is eligible
for a pilot program contribution. Pilot pro-
gram contributions do not count towards
the $5,000 annual contribution limit.

September 14, 2026 326 Bulletin No. 2026–38
All other contributions to a Trump
account, including contributions from
friends or family members, are non-de-
ductible contributions (they create invest-
ment in the contract) and count towards
the $5,000 annual contribution limit.
The proposed regulations (§ 1.530A-3)
are just one piece of the implementation
of section 530A; prior guidance addressed
the election to open an initial Trump
account (§ 1.530A-1), and future guid-
ance will address other issues (§§ 1.530A-
2, 1.530A-4, 1.530A-5, 1.530A-6, and
1.530A-7). The proposed regulations
would define the following terms for the
purposes of implementing section 530A:
ETF, mutual fund, and investment fund.
For implementing section 530A, the defi-
nition of ETF is taken from 17 C.F.R.
§270.6c 11(a)(1), modified to include enti-
ties that operate in substantially the same
manner. For implementing section 530A,
the definition of mutual fund is taken
from 15 U.S.C. § 80a-5(a)(1), modified to
exclude ETFs. An investment fund is an
ETF or a mutual fund.
The proposed regulations would pro-
vide rules for determining whether an
investment fund is an eligible invest-
ment. The rules would clarify that an
investment fund (1) tracks the returns
of an index if it seeks to provide invest-
ment results that replicate the per-
formance of the index and the fund
holds investments that are reasonably
expected to accomplish that objective,
(2) uses leverage if it uses borrowings,
derivatives, or other strategies that are
economically equivalent to borrowings
in a way that materially increases the
risk of loss associated with an invest-
ment in the fund, and (3) is not an eli-
gible investment if it charges annual
fees and annual expenses of more than
0.1% of the net value of its assets. The
rules would clarify that an investment
fund is not an eligible investment if it
corresponds to the returns of an ESG
index. The rules would clarify that, to
be a qualified index, an index (1) must
have a publicly available index method-
ology, (2) must not include a stock or
similar ownership interest based on the
industry of the issuing company, and (3)
must be comprised of stocks and inter-
ests in companies that are primarily
domestic under section 7701(a)(4). The
rules would provide a safe harbor that
an index with at least 90 percent U.S.
companies by index weight is consid-
ered to be primarily U.S. companies.
The proposed regulations would pro-
vide procedures for a trustee of a Trump
account to ensure that funds are invested
in an eligible investment. A trustee would
be required to ensure that investment
funds available for a Trump account are
eligible investments and that contribu-
tions to a Trump account are invested
in an eligible investment by default.
A trustee would generally be required
to ensure that an investment fund held
by a Trump account that ceases to be
an eligible investment is disposed and
the proceeds reinvested in an eligible
investment within 30 days of ceasing to
be an eligible investment. However, if a
trustee makes periodic determinations of
whether an investment fund is an eligible
investment based on public documents
at least once every 12 months, then the
trustee would generally be permitted to
rely on the periodic determinations, and
the trustee would be required to ensure
that an investment fund that ceases to be
an eligible investment is disposed and the
proceeds reinvested within 30 days of the
periodic determination.
Baseline
The Treasury Department and the
IRS have assessed the benefits and costs
of the proposed regulations relative to a
no-action baseline reflecting anticipated
Federal income tax-related behavior in
the absence of these proposed regula-
tions.
Affected Entities and Taxpayers
The proposed regulations are expected
to affect 85 million children in 44 million
families.
Economic Effects of the Proposed
Regulations
Share of U.S. equities
The proposed regulations would clar-
ify how to apply the statutory requirement
that investment funds held by Trump
accounts track the returns of an index of
equities in “primarily” U.S. companies.
The proposed regulations would pro-
vide a safe harbor that an index with at
least 90 percent U.S. companies by index
weight is considered to be “primarily”
U.S. companies. Alternatives would be to
provide a safe harbor with a different per-
centage or no safe harbor. The 90 percent
threshold is low enough to accommodate
temporary changes in indexes that are
generally designed to track the returns
of U.S. companies and high enough to
clearly align with the statutory language.
A safe harbor gives trustees the legal cer-
tainty they need to provide appropriate
investment fund alternatives in Trump
accounts.
The statute explicitly allows invest-
ment funds to track the Standard & Poor’s
500 (S&P 500) stock market index. The
companies in the S&P 500 ended 2025
with a market capitalization of $58 trillion.
There are many other indexes that satisfy
the safe harbor. For example, the Center
for Research in Security Prices (CRSP)
U.S. total market index, which includes
companies that ended 2025 with a mar-
ket capitalization of $65 trillion, and the
Nasdaq Composite index, which includes
companies that ended 2025 with a mar-
ket capitalization of $35 trillion. Trustees
are likely to act cautiously by choosing
indexes that do not approach the safe har-
bor, so the impact of the safe harbor rela-
tive to a slightly different percentage or no
safe harbor is likely small.
Assessment frequency
The proposed regulations would clar-
ify how often a trustee must determine
whether an investment fund held by
Trump accounts is an eligible invest-
ment. The proposed regulations would
allow a trustee to rely on periodic deter-
minations of whether an investment fund
is an eligible investment based on pub-
lic documents if the trustee makes the
periodic determinations at least once
every 12 months. Alternatives would be
to require assessment more frequently,
such as quarterly, or to require continu-
ous monitoring. An annual determination
is frequent enough to identify changes in
fund or index eligibility, while avoiding a
continuous-monitoring requirement that
could discourage trustees from offering

Bulletin No. 2026–38 327 September 14, 2026
otherwise appropriate investment fund
alternatives. A safe harbor gives trustees
the legal certainty they need to adminis-
ter Trump accounts without unnecessary
compliance costs.
Annual assessment is consistent with
other significant financial reporting
cycles. Public companies generally file
one annual report on Form 10-K each
year. Public companies also generally
file quarterly reports on Form 10-Q for
the first three fiscal quarters. Requiring
trustees to reassess fund eligibility more
often than annually could impose recur-
ring review obligations that exceed what
is necessary to confirm that funds remain
aligned with statutory requirements.
Trustees are likely to act cautiously by
selecting funds and indexes that clearly
satisfy the requirements, so the impact of
allowing annual determinations relative
to a more frequent requirement is likely
small.
Disposal of ineligible investments
The proposed regulations would clar-
ify how quickly a trustee must ensure
disposal of an investment fund held by
Trump accounts after the fund no lon-
ger satisfies the statutory requirements
(or after a periodic determination to that
effect). The proposed regulations would
allow a Trump account not to lose its
status as a Trump account if the disposal
occurs within 30 days. Alternatives would
be to allow shorter or longer remediation
periods or not to allow any remediation.
A 30-day period is short enough to ensure
that Trump accounts are not maintained
in ineligible investments for an extended
period and long enough to permit orderly
trading and operational processing. A rea-
sonable remediation period gives trustees
the legal certainty they need to correct
eligibility issues without forcing rushed
transactions that may be impractical or
disadvantageous.
Correction periods in other retirement
and tax contexts commonly allow time
for orderly correction rather than requir-
ing immediate action. For example, under
IRS self-correction rules, many signifi-
cant retirement plan operational failures
may be corrected before the end of the
third plan year after the year of the failure.
The excise tax rules for prohibited trans-
actions also distinguish between an initial
tax of 15 percent of the amount involved
and an additional 100 percent tax if the
transaction is not corrected within the tax-
able period. Compared with these longer
correction frameworks, a 30-day disposal
period is relatively prompt. Trustees are
likely to act cautiously by selecting funds
that clearly satisfy the requirements and
by disposing of ineligible investments
soon after an issue is identified, so the
impact of the 30-day remediation period
is likely small.
Prohibition on ESG criteria
The proposed regulations would spec-
ify that an investment fund is not an eli-
gible investment for Trump accounts if
it corresponds to the returns of an ESG
index. An alternative would be to permit
funds that track ESG indexes. Whether
funds that track ESG indexes are avail-
able or not in Trump accounts has very
little economic impact. A meta-analysis
of ESG studies found that “ESG invest-
ing returns were generally indistin-
guishable from conventional investing
returns”.
2
Demand for ESG indexes is a
small share of the market for passively
managed funds. At the end of 2025, U.S.
passively managed mutual funds and
ETFs held $19.4 trillion in net assets
while sustainable funds, including funds
that track ESG indexes, held $368 billion
in net assets, according to Morningstar.
3,4

Given the small percentage of assets
invested in funds that track ESG indexes,
it is reasonable to believe that most adults
managing Trump accounts on behalf of
children would not have chosen invest-
ment funds that track ESG indexes even
if they were available.
II. Paperwork Reduction Act
The Paperwork Reduction Act of 1995
(44 U.S.C. 3501-3520) generally requires
that a Federal agency obtain the approval
of the OMB before collecting information
from the public, whether such collection
of information is mandatory, voluntary,
or required to obtain or retain a benefit.
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
control number.
The collections of information in these
proposed regulations contain third-party dis-
closure and recordkeeping requirements that
are necessary to ensure that no part of the
account funds will be invested in any asset
other than an eligible investment during
the growth period as required under sec-
tion 530A(b)(1)(C)(iii). These collections
of information generally would be used by
the IRS for tax compliance purposes and by
account beneficiaries and trustees to ensure
the account qualifies as a Trump account.
This proposed regulation provides
that beneficiaries can direct trustees how
to allocate funds among eligible invest-
ments. Clients being able to allocate funds
within their accounts is a usual and cus-
tomary business practice. Usual and cus-
tomary business records are incurred as a
normal course of business activities and
are excluded from the definition of burden
under 5 CFR 1320.3(b)(2).
The proposed regulation includes third-
party disclosures and associated record-
keeping requirements from trustees to
account beneficiaries (or “legally respon-
sible parties”). IRS is soliciting feedback
on these collection requirements and their
associated burdens. IRS anticipates that
the likely respondents are businesses and
for-profit organizations. Table 1 provides
a high-level description of the collection
requirements and the regulatory section
that include additional details. Table 2
provides the estimated burden placed on
trustees for each collection requirement.
2
Whelan, Tensie, et al. ESG and Financial Performance: Uncovering the Relationship by Aggregating Evidence from 1,000 Plus Studies Published between 2015–2020. NYU Stern Center
for Sustainable Business and Rockefeller Asset Management, 2021. https://www.stern.nyu.edu/sites/default/files/assets/documents/ESG%20Paper%20Aug%202021.pdf
3
Carter, David, and Jack Bullard. U.S. Fund Flows: December 2025. Morningstar, 2026. https://assets.contentstack.io/v3/assets/blt9415ea4cc4157833/bltb441ce3c78f39445/2025_US_
Fund_Flows.pdf
4
Bioy, Hortense, et al. Global Sustainable Fund Flows: Q4 and Full-Year 2025 in Review. Morningstar Sustainalytics, 2026. https://assets.contentstack.io/v3/assets/blt9415ea4cc4157833/
blt1d54e64f88b82b3b/Global_ESG_Flows_Q4_2025_Report.pdf

September 14, 2026 328 Bulletin No. 2026–38
Table 1: Description of Collections
OMB Control
NumberCollection Type
New or Revised
CollectionDescription
Regulatory Section with
Additional Details
1545-NEWThird-party Disclosure
and Recordkeeping
NewWritten governing instruments26 CFR 1.530A-3(g)(2)
1545-NEWThird-party Disclosure
and Recordkeeping
NewDisclosure of a default eligible
investment
26 CFR 1.530A-3(g)(4)(ii)
1545-NEWThird-party Disclosure
and Recordkeeping
NewDisclosure of how dividends
are invested
26 CFR 1.530A-3(g)(4)(iii)
1545-NEWThird-party Disclosure
and Recordkeeping
NewDisclosure of a reinvestment
due to investment ineligibility
26 CFR 1.530A-3(g)(5)(ii)
1545-NEWThird-party Disclosure
and Recordkeeping
NewDisclosure of a reinvestment
due to administrative error
26 CFR 1.530A-3(g)(7)
1545-NEWRecordkeepingNewPeriodic determinations of
account eligibility
26 CFR 1.530A-3(g)(6)
Table 2: Estimated Burden
Collection
Estimated
number of
respondents
Estimated
frequency of
responses
Estimated average
annual burden per
response
Estimated total
annual burden
hours
26 CFR 1.530A-3(g)(2), (g)(4)(ii),
(g)(4)(iii) -
Draft the written governing
instruments and related disclosures
(start-up/one time burden)
4,600140 hours184,000
26 CFR 1.530A-3(g)(2) - Obtaining
consent on written governing
instruments
4,60027,7171 minute2,124,970
26 CFR 1.530A-3(g)(6) - Periodic
determination of eligible investments
4,60038 hours110,400
26 CFR 1.530A-3(g)(4)(ii) - Sending
disclosure notice
4,60027,7171 minute2,124,970
26 CFR 1.530A-3(g)(4)(iii) -
Sending disclosure notice
4,60027,7171 minute2,124,970
26 CFR 1.530A-3(g)(5)(ii) - Sending
disclosure notice
5
127,7171 minute462
26 CFR 1.530A-3(g)(7) - Sending
disclosure notice
5
127,7171 minute462
The collections contained in this notice
of proposed rulemaking have been sub-
mitted to the Office of Management and
Budget for review in accordance with the
Paperwork Reduction Act under OMB
Control Number 1545-NEW. Comment-
ers are strongly encouraged to submit
public comments electronically. Written
comments and recommendations for the
proposed information collection should be
sent to www.reginfo.gov/public/do/PRA-
Main, with copies to the Internal Revenue
Service. Find this particular information
collection by selecting “Currently under
Review - Open for Public Comments”
then by using the search function. Submit
electronic submissions for the proposed
information collection to the IRS via
email at pra.comments@irs.gov (indicate
CC-00349938-26 on the Subject line).
Comments on the collection of informa-
5
Disclosure events for ineligible investments are expected to occur extremely infrequently. In any given year, it’s anticipated that less than 1% of trustees will need to issue a particular
disclosure. Sending the disclosures is anticipated to be done electronically and be minimal burden on the trustee.

Bulletin No. 2026–38 329 September 14, 2026
tion should be received by October 20,
2026.
Comments are specifically requested
concerning: (a) Whether the proposed
collection of information is necessary for
the proper performance of the functions
of the IRS, including whether the infor-
mation will have practical utility; (b) the
accuracy of the estimated burden associ-
ated with the proposed collection of infor-
mation; (c) how the quality, utility, and
clarity of the information to be collected
may be enhanced; (d) how the burden of
complying with the proposed collection
of information may be minimized, includ-
ing through the application of automated
collection techniques or other forms of
information technology; and (e) estimates
of capital or start-up costs and costs of
operation, maintenance, and purchase of
services to provide information.
III. Regulatory Flexibility Act
The Secretary hereby certifies that
these proposed regulations would not
have a significant economic impact on a
substantial number of small entities pur-
suant to the Regulatory Flexibility Act
(5 U.S.C. chapter 6). The proposed rules
would not impose a significant economic
impact on any regulated entities because
the regulation’s economic impact on
entities is generally limited to requiring
procedures to be set up by the trustee to
ensure compliance with the statute and the
regulation, language in the written gov-
erning instrument, requiring disclosure of
the default eligible investment and how
dividends will be invested (or any changes
thereto), making periodic (likely annual)
determinations that investments are still
eligible investments, and rare disclosures
if a reinvestment has occurred because of
an ineligible investment. Because these
requirements are either one-time, rare,
or limited to internal determinations, any
economic impact is expected not to be
significant. Additionally, the proposed
regulations affect only trustees of Trump
accounts, which generally should not
include small entities and therefore should
not affect a substantial number of small
entities. Therefore, a Regulatory Flexibil-
ity Act analysis is not required.
Notwithstanding this certification, the
Treasury Department and the IRS invite
comments on the impacts these proposed
regulations may have on small entities.
IV. Unfunded Mandates Reform Act
Section 202 of the Unfunded Man-
dates Reform Act of 1995 (UMRA)
requires that agencies assess anticipated
costs and benefits and take certain other
actions before issuing a final rule that
includes any Federal mandate that may
result in expenditures in any one year
by a State, local, or Tribal government,
in the aggregate, or by the private sector,
of $100 million in 1995 dollars, updated
annually for inflation. These proposed
regulations do not include any Federal
mandate that may result in expenditures
by State, local, or Tribal governments,
or by the private sector in excess of that
threshold.
V. Executive Order 13132: Federalism
Executive Order 13132 (Federalism)
prohibits an agency from publishing any
rule that has federalism implications if
the rule either imposes substantial, direct
compliance costs on State and local gov-
ernments, and is not required by statute,
or preempts State law, unless the agency
meets the consultation and funding
requirements of section 6 of the Execu-
tive order. These proposed regulations do
not have federalism implications and do
not impose substantial direct compliance
costs on State and local governments or
preempt State law within the meaning of
the Executive order.
VI. Small Business Administration
Pursuant to section 7805(f) of the
Code, this notice of proposed rulemaking
will be submitted to the Chief Counsel for
the Office of Advocacy of the Small Busi-
ness Administration for comment on its
impact on small business.
Comments and Request for a Public
Hearing
Before these proposed regulations
are adopted as final regulations, consid-
eration will be given to any comments
that are submitted timely to the IRS as
prescribed in this preamble under the
ADDRESSES heading. The Treasury
Department and the IRS request com-
ments on all aspects of the proposed
regulations. Any comments submitted
will be made available at https://www.
regulations.gov or upon request. A public
hearing will be scheduled if requested in
writing by any person who submits elec-
tronic or written comments. Requests for
a public hearing are also encouraged to be
made electronically. If a public hearing is
scheduled, notice of the date and time for
the public hearing will be published in the
Federal Register.
Statement of Availability of IRS
Documents
IRS Revenue Rulings, Revenue Proce-
dures, Notices, and other guidance cited
in this document are published in the
Internal Revenue Bulletin (or Cumula-
tive Bulletin) and are available from the
Superintendent of Documents, U.S. Gov-
ernment Publishing Office, Washington,
DC 20402, or by visiting the IRS website
at https://www.irs.gov.
Drafting Information
The principal author of these proposed
regulations is Justin R. Karlin of the
Office of Associate Chief Counsel (Finan-
cial Institutions and Products). However,
other personnel from the Treasury Depart-
ment and the IRS also participated in its
development. For further information
about these proposed regulations, contact
Mr. Karlin at (202) 317-6842 (not a toll-
free number).
Lists of Subjects in 26 CFR Part 1
Income taxes, Reporting and record-
keeping requirements.
Proposed Amendments to the
Regulations
Accordingly, the Treasury Department
and the IRS propose to amend 26 CFR
part 1 as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation
for part 1 is amended by adding an entry

September 14, 2026 330 Bulletin No. 2026–38
for § 1.530A-3 in numerical order to read
as follows:
Authority: 26 U.S.C. 7805 * * *
* * * * *
Section 1.530A-3 also issued under 26
U.S.C. 530A(b)(3)(A)(iv) and (g)(3).
* * * * *
Par. 2. Section 1.530A-3 is added to
read as follows:
§ 1.530A-3 Trump accounts – Eligible
investments.
(a) Overview. Under section 530A(b)
(1)(C)(iii), for an account to qualify as
a Trump account, the written governing
instrument creating the account may not
permit any part of the account funds to
be invested in any asset other than an eli-
gible investment during the period that
begins when the initial Trump account is
established and ends on December 31 of
the calendar year in which the account
beneficiary attains age 17 (the growth
period). Paragraph (b) of this section
provides definitions related to eligible
investments. Paragraph (c) of this sec-
tion provides rules regarding whether
an investment fund tracks the returns
of an index. Paragraph (d) of this sec-
tion provides rules regarding whether
an investment fund uses leverage. Para-
graph (e) of this section provides rules
related to qualified indices. Paragraph
(f) of this section provides rules for
determining whether an investment fund
has annual fees and expenses within the
0.1 percent limit. Paragraph (g) of this
section provides procedures for a trustee
of a Trump account (trustee) to ensure
that no part of the account funds will be
invested in any asset other than an eli-
gible investment. Paragraph (h) of this
section provides the applicability date of
this section.
(b) Definitions. The following defini-
tions apply for purposes of section 530A
and this section:
(1) Eligible investment. The term eli-
gible investment means any mutual fund
or exchange traded fund that tracks the
returns of a qualified index, does not use
leverage, does not have annual fees and
expenses of more than 0.1 percent of the
balance of the investment in the fund, and
meets such other criteria as the Secretary
of the Treasury or the Secretary’s delegate
(Secretary) determines appropriate for
purposes of section 530A.
(2) Exchange traded fund (ETF). The
term exchange traded fund (ETF) means
a domestic corporation (including a reg-
ulated investment company (RIC)) that is
registered under the Investment Company
Act of 1940, Public Law 76-768, 54 Stat.
789 (the 1940 Act), as amended, and that
is either--
(i) An “exchange-traded fund” as
defined for purposes of the 1940 Act in 17
C.F.R. § 270.6c-11(a)(1); or
(ii) An entity that operates in substan-
tially the same manner as an exchange-
traded fund but that is not described in 17
C.F.R. § 270.6c-11(a)(1), such as a unit
investment trust or ETF share class of a
mutual fund operating as an ETF under
exemptive relief granted by the Securities
and Exchange Commission.
(3) Investment fund. The term invest-
ment fund means a mutual fund or an ETF.
(4) Mutual fund. The term mutual fund
means a domestic corporation (including
a RIC) that is registered under the 1940
Act as an open-end company (as defined
in 15 U.S.C. § 80a-5(a)(1)) and that is not
an ETF.
(5) Qualified index. The term qualified
index means the Standard and Poor’s 500
stock market index, or any other index
that is comprised of equity investments
in primarily United States companies and
for which regulated futures contracts (as
defined in section 1256(g)(1)) are traded
on a qualified board or exchange (as
defined in section 1256(g)(7)). A quali-
fied index does not include any industry
or sector-specific index but may include
an index based on market capitalization.
Paragraph (e) of this section provides
rules for determining whether an index is
a qualified index.
(6) Regulated investment company
(RIC). The term regulated investment
company (RIC) means a regulated invest-
ment company within the meaning of sec-
tion 851(a).
(c) Tracking the returns of an index--
(1) In general. For purposes of section
530A(b)(3)(A)(i) and this section, an
investment fund tracks the returns of an
index if the fund’s investment objective is
to seek to provide investment results that,
before fees and expenses, replicate the per-
formance of the index, and the fund holds
investments that are reasonably expected
to accomplish that objective. For example,
a fund may track the returns of an index by
holding shares of most or all of the stocks
that are constituents of the index in propor-
tion to the stocks’ weightings in the index.
An investment fund does not fail to track
the returns of an index merely because the
returns from the fund are affected by fees,
expenses, trading costs, variations arising
from buying and selling securities when
the index changes, and similar variations
incidental to operating a fund that seeks
to replicate the performance of an index.
(2) Investment funds that do not track
the returns of an index. Except as pro-
vided in paragraph (c)(3) of this section,
an investment fund does not track the
returns of an index if the fund uses one
or more strategies to outperform or other-
wise perform differently from the index.
Thus, an investment fund that, in some or
all market conditions, uses any strategy to
decrease or increase the volatility, risk, or
current income associated with the index
does not track the returns of the index. For
example, an investment fund that owns
shares of each stock that is a component of
an index and sells covered calls on some
or all of those shares does not track the
returns of the index, because the fund’s
strategy diminishes the fund’s participa-
tion in the potential appreciation in the
shares and increases the fund’s current
income. An investment fund that seeks to
provide investment results consistent with
the return on several different indices does
not track the returns of an index.
(3) Securities lending. An investment
fund does not fail to track the returns of
an index because the investment fund
engages in securities lending transactions
so long as the investment fund retains full
economic exposure to the securities.
(d) Does not use leverage--(1) In gen-
eral. For purposes of section 530A(b)(3)
(A)(ii) and this section, an investment
fund that references an index is consid-
ered to use leverage if the fund uses bor-
rowings, derivatives, or other strategies
that are economically equivalent to bor-
rowings in a way that materially increases
the risk of loss associated with an invest-
ment in the investment fund (as compared
to an investment in a fund that holds the
index components physically and that
does not borrow or use derivatives). Thus,

Bulletin No. 2026–38 331 September 14, 2026
an investment fund uses leverage if, as
a result of borrowings or derivatives or
another economic equivalent, a change in
the level of the index the returns of which
the fund seeks to replicate tends to cause a
materially greater proportional change in
the net value of the fund’s portfolio. For
example, an investment fund is consid-
ered to use leverage if the fund provides
investment results that correspond to the
performance of an index multiplied by a
number greater than one (regardless of
whether the fund uses borrowings, deriv-
atives, or another economic equivalent to
provide such results).
(2) Permitted borrowings and deriv-
atives. An investment fund is not con-
sidered to use leverage merely because
it borrows or uses derivatives as part of
its strategy to replicate the performance
of an index, so long as the borrowings
or derivatives do not materially increase
the risk of loss associated with an invest-
ment in the investment fund. Thus, an
investment fund is not considered to use
leverage merely because the fund incurs
short-term borrowings to provide liquidity
for redemptions or to purchase portfolio
securities in connection with investment
flows into the fund or because the fund
uses derivatives to gain synthetic expo-
sure to certain index components. An
investment fund’s obligation to return
collateral received for securities lending
transactions described in paragraph (c)(3)
of this section is not treated as leverage so
long as the investment fund takes appro-
priate steps to limit the risk of loss with
respect to the collateral. To limit the risk
of loss with respect to cash collateral, the
investment fund must hold the collateral
in cash or in highly liquid, conservative
positions (like money market funds). To
limit the risk of loss with respect to non-
cash collateral, the investment fund must
not sell the collateral or otherwise use
the collateral (for example, by pledging
it as collateral in another transaction) to
increase the fund’s exposure to the index
or other assets.
(e) Qualified index--(1) In general.
This paragraph (e) provides rules to deter-
mine whether an index is a qualified index
within the meaning of section 530A(b)(3)
(B) and paragraph (b)(5) of this section. To
be a qualified index, an index must have a
publicly available index methodology that
describes the criteria for inclusion in the
index and the construction of the index.
Whether an index meets the requirements
in this paragraph (e) is generally deter-
mined by reference to the index method-
ology for the index.
(2) Industry-specific and sector-spe-
cific indices. For purposes of section
530A(b)(3)(B) and paragraph (b)(5) of
this section, an index is industry-specific
or sector-specific if inclusion of a stock
or interest in the index depends on the
business or industry in which the issuing
company is engaged. Thus, any index that
depends on industry classification codes
for inclusion of a company in the index
is an industry-specific or sector-specific
index. Similarly, an index that includes
stocks of companies operating in sev-
eral related industries or sectors (such as
hotels, air travel, and outdoor recreation)
is an industry-specific or sector-specific
index.
(3) Other index-related criteria for eli-
gible investments. Any investment fund
that corresponds to the returns of an envi-
ronmental, social, and governance (ESG)
index is not an eligible investment. An
ESG index includes any index that has,
or is marketed as having, a focus on envi-
ronmental, social, or governance factors.
Any investment fund that is marketed or
sold as having an investment objective
to track an ESG index is not an eligible
investment.
(4) Market capitalization. For purposes
of section 530A(b)(3)(B) and paragraph
(b)(5) of this section, an index is based on
market capitalization if a condition for the
inclusion of a company’s stock (or other
ownership interests) in the index is that
the company has a market capitalization
that is within a specified range or over or
under a specified threshold, or that meets
specified ranking criteria. Therefore, an
index that meets the requirements to be a
qualified index in section 530A(b)(3)(B)
and this paragraph (e) does not fail to be a
qualified index as a result of such a condi-
tion for inclusion.
(5) Equity investments. For purposes of
section 530A(b)(3)(B) and paragraph (b)
(5) of this section, an index is considered
to be comprised of equity investments if
the index is comprised entirely of stocks
and similar ownership interests in the
form of partnership or membership inter-
ests. An index is not comprised of equity
investments if it includes debt instru-
ments, derivatives, or any other asset that
is not an ownership interest in a company.
(6) United States companies. For pur-
poses of section 530A(b)(3)(B) and para-
graph (b)(5) of this section, United States
companies (U.S. companies) are com-
panies that are domestic under section
7701(a)(4).
(7) Safe harbor for indices that include
interests in foreign companies. For pur-
poses of section 530A(b)(3)(B) and para-
graph (b)(5) of this section, an index is
comprised primarily of U.S. companies if
U.S. companies represent at least 90 per-
cent of the index based on their weight-
ings in the index.
(f) Limit on annual fees and
expenses--(1) In general. For purposes of
section 530A(b)(3)(A)(iii) and this sec-
tion, an investment fund is not an eligible
investment if the sum of its annual fees (as
described in paragraph (f)(2) of this sec-
tion) and annual expenses (as described
in paragraph (f)(3) of this section) is more
than 0.1 percent of the net value of its
assets.
(2) Annual fees--(i) In general. Except
as provided in the following sentence, the
amount of an investment fund’s annual
fees for purposes of section 530A(b)(3)
(A)(iii) and this section is the aggregate
amount of fees of the investment fund (as
described in paragraph (f)(2)(ii) of this
section) imposed during the most recent
fiscal year (within the meaning of 17
C.F.R. § 210.1-02(k)) of the investment
fund the financial data from which has
appeared in the investment fund’s pro-
spectus, expressed as a percentage of the
investment fund’s average net asset value
during that fiscal year (or a reasonable
estimate). If an investment fund’s most
recent prospectus discloses a change in
the investment fund’s fee structure that
increases the investment fund’s aggregate
annual fees, the computation described
in the preceding sentence must take into
account the effect of such increase (or a
reasonable estimate). If an investment
fund has multiple share classes, annual
fees are computed separately for each
class, based on the fees that apply to that
class and the assets allocable to that class.
(ii) Fees of an investment fund. For pur-
poses of section 530A(b)(3)(A)(iii) and

September 14, 2026 332 Bulletin No. 2026–38
this section, an investment fund’s fees are
all of the amounts that the fund charges
its investment fund holders directly, with-
out regard to how such amounts are com-
puted, when they are imposed, or how
such amounts are referred to in securities
filings or marketing materials. Thus, fees
include annual, periodic, transactional,
and other recurring amounts charged by
an investment fund. Fees also include
amounts charged by an investment fund
a single time, such as upon a purchase or
redemption of interests in the investment
fund. Fees include amounts expressed as a
fixed dollar amount, as a percentage of the
amount invested, or on another basis. An
investment fund’s fees are disclosed in the
fund’s prospectus, often under the heading
“Shareholder Fees” or “Unitholder Fees”
in a fee table.
(iii) Fees not associated with an invest-
ment fund. The 0.1 percent limit on fees
and expenses in section 530A(b)(3)(A)(iii)
is a requirement for an eligible investment
and not for a Trump account. Fees charged
by a trustee for providing an account are
not treated as part of any investment
fund’s annual fees but as trustee fees. A
fee charged by a financial intermediary
for a service, such as carrying out a pur-
chase or sale of an investment fund is not
considered a part of the investment fund’s
fees if the fee is not charged on behalf of
or at the direction of the investment fund,
is not paid (directly or indirectly) to the
investment fund, and is not attributable to
any cost of offering the investment fund.
A fee charged by a trustee for such a ser-
vice would also not be considered a part
of the investment fund’s fees under this
paragraph.
(3) Annual expenses. For purposes of
section 530A(b)(3)(A)(iii) and this sec-
tion, the amount of an investment fund’s
annual expenses is the amount set forth
as the investment fund’s total annual
operating expenses in its prospectus.
The amount may be stated as a percent-
age of the value of the investment fund
holder’s investment, or as a percentage
of the net value of the fund’s net assets.
If an investment fund’s prospectus lists
total operating expenses reduced by fee
waivers or expense reimbursements, the
reduced amount applies for purposes of
section 530A(b)(3)(A)(iii) and this sec-
tion. If an investment fund has multiple
share classes, annual expenses are com-
puted separately for each class, based on
the expenses and assets allocable to each
class.
(g) Trustee’s procedures regarding eli-
gible investments--(1) In general. To meet
the requirement of section 530A(b)(1)
(C)(iii), a trustee must ensure that Trump
account funds are invested only in one
or more eligible investments during the
growth period. The trustee satisfies that
requirement by following the procedures
provided in this paragraph (g).
(2) Written governing instrument. The
written governing instrument creating a
Trump account must include the proce-
dures provided in paragraphs (g)(4), (5),
and (7) of this section.
(3) Consequences of failure. Except as
otherwise provided in this paragraph (g),
if any funds of an account are invested in
an asset other than an eligible investment
(ineligible investment) during the growth
period, then the account will cease to be a
Trump account (and thus will also cease
to be an individual retirement account
(IRA) under section 408(a)) as of the
first day the account holds the ineligible
investment. However, if any funds of an
account are invested in an asset that is an
eligible investment at the time the asset is
acquired but that becomes an ineligible
asset during the growth period, then the
account will cease to be a Trump account
(and an IRA) as of the 30th day after the
day that the asset ceased to be an eligible
investment (taking into account paragraph
(g)(5)(ii) of this section). If this paragraph
(g)(3) applies to cause an account to cease
to be a Trump account (and an IRA), then
the account will be treated as if there were
a distribution on that day of an amount
equal to the fair market value of all of the
assets in the account on that day. The pre-
ceding sentence applies even if part of the
fair market value of the account as of that
day is attributable to excess contributions
that may otherwise be returned tax-free
under section 530A(d)(5).
(4) Selection of eligible investment
and default eligible investment--(i) Selec-
tion of eligible investments. A trustee
must limit the investment or investments
available for a Trump account during the
growth period to investment funds that the
trustee has determined are eligible invest-
ments.
(ii) Default eligible investment. The
trustee must establish for each Trump
account under the trustee’s administration
a default eligible investment in which,
during the growth period, all contribu-
tions, proceeds from sales or other dispo-
sitions, and any other amounts for invest-
ment (other than amounts addressed by
paragraph (g)(4)(iii) of this section) will
be invested unless the account beneficiary
(as defined in section 530A(b)(4)) (or
any person authorized to act on behalf of
the account beneficiary under the Trump
account’s written governing instrument
(the responsible party)) specifies a differ-
ent eligible investment for the contribu-
tion or other amount. The default eligible
investment for a Trump account can be a
single eligible investment or a combina-
tion of eligible investments in specified
proportions and may be changed by the
trustee from time to time. The trustee
must clearly disclose to each account
beneficiary the default eligible invest-
ment in effect upon the establishment
of the account and upon any subsequent
change to the default eligible investment.
The requirement to establish a default
eligible investment does not preclude
arrangements between the trustee and
the account beneficiary that give effect
to different instructions on an ongoing
basis. For example, the trustee may follow
instructions of an account beneficiary (or
responsible party) to invest all contribu-
tions or other amounts for investment in
that account beneficiary’s account (or all
such amounts for which another instruc-
tion is not provided) in a specified eligible
investment other than the trustee’s default
eligible investment.
(iii) Dividends and other investment
fund distributions. The trustee of a Trump
account must disclose to the account ben-
eficiary how amounts received as divi-
dends or other distributions from eligible
investments will be invested unless the
account beneficiary (or responsible party)
gives different instructions regarding the
dividends and distributions. For example,
amounts received as dividends and distri-
butions might be reinvested in the same
eligible investments that paid the divi-
dends or other distributions or invested
in the Trump account’s default eligible
investment. The trustee may give effect
to directions from the account beneficiary

Bulletin No. 2026–38 333 September 14, 2026
(or responsible party) that a specific dis-
tribution, or distributions generally, be
invested in a different way that complies
with section 530A(b)(1)(C)(iii).
(5) Situations in which funds need not
be invested in an eligible investment--(i)
Certain cash holdings. During the growth
period, the trustee may permit an amount
received in a Trump account as cash, such
as an amount received as a contribution,
proceeds of a sale or other disposition, or
a distribution, to be held in cash for the
time reasonably necessary to complete a
transaction permitted under section 530A,
including an investment, reinvestment,
distribution of excess contribution, qual-
ified rollover contribution, or qualified
ABLE rollover contribution.
(ii) Ceasing to be an eligible invest-
ment--(A) In general. In the event an
investment fund that was an eligible
investment (as determined by the trustee
as of the trustee’s last determination date
described in paragraph (g)(6) of this sec-
tion) then ceases to be an eligible invest-
ment during the growth period, in order for
the account to remain a Trump account,
the trustee must ensure the prompt sale
or disposition of shares in the investment
fund and the reinvestment of the proceeds
consistent with paragraph (g)(4)(ii) of this
section and disclose how the proceeds
were reinvested to the account benefi-
ciary. A sale or disposition of shares in the
investment fund and the reinvestment of
the proceeds will be considered prompt if
the sale or disposition and reinvestment
of the proceeds occur within 30 calendar
days of the investment fund ceasing to be
an eligible investment.
(B) Time when a fund is treated as
ceasing to be an eligible investment. For
purposes of this paragraph (g)(5)(ii), the
time when the investment fund is treated
as ceasing to be an eligible investment is
determined based on whether the trustee
is in compliance with the monitoring and
periodic determination requirements in
paragraph (g)(6) of this section.
(1) If the trustee is not in compliance
with the monitoring and periodic deter-
mination requirements of paragraph (g)
(6) of this section, the investment fund
ceases to be an eligible investment on the
first day that the investment fund does
not meet the requirements to be an eligi-
ble investment;
(2) If the trustee is in compliance with
the monitoring and periodic determination
requirements of paragraph (g)(6) of this
section, the investment fund is treated as
ceasing to be an eligible investment on
the earlier of the date of the next periodic
determination conducted by the trustee
or the date on which the trustee acquires
actual knowledge that the investment is no
longer an eligible investment.
(6) Trustee monitoring of investment
funds. During the growth period, the
trustee must monitor each investment
fund that the trustee makes available to
Trump account beneficiaries. After mak-
ing an initial determination that an invest-
ment fund is an eligible investment at the
time the trustee first offers the investment
fund to any Trump account for which it
is the trustee, the trustee must then make
subsequent periodic determinations at
least once every 12 months whether the
investment fund continues to be an eli-
gible investment. These determinations
must include verifying that the annual
fees and expenses of the investment fund
continue to meet the requirements of sec-
tion 530A(b)(3)(A)(iii) and paragraph (f)
of this section. The trustee may rely on an
investment fund’s prospectus and other
public documents required by Federal
securities laws in making determinations
pursuant to this paragraph (g)(6).
(7) Correction of administrative error.
If a trustee has procedures in place in
accordance with this paragraph (g) but a
portion of the assets of a Trump account
are not invested in an eligible invest-
ment during the growth period due to an
administrative error by the trustee (for
example, due to an oversight or mistake
in applying the procedures), the account
will not cease to be a Trump account
under paragraph (g)(3) of this section if
the trustee sells or disposes of the assets
that are not invested in an eligible invest-
ment and reinvests the proceeds in an
eligible investment consistent with para-
graph (g)(4)(ii) of this section within
30 calendar days from the first day that
the portion was not invested in an eligi-
ble investment. Furthermore, the trustee
must disclose to the account beneficiary
the duration of the error, the assets that
were held during the error period, and the
amount reinvested in an eligible invest-
ment at the end of the error period.
(h) Applicability dates. This section
applies to taxable years beginning on or
after January 1, 2026, except for para-
graph (g) of this section, which applies for
taxable years beginning on or after [DATE
OF PUBLICATION OF FINAL RULE].
Frank J. Bisignano,
Chief Executive Officer.
(Filed by the Office of the Federal Register August
20, 2026, 8:45 a.m., and published in the issue of the
Federal Register for August 21, 2026, 91 FR 54280)
Notice of Proposed
Rulemaking
Determination of Target
Normal Cost and Funding
target for Single-Employer
Defined Benefit Plans
REG-107855-25
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemak-
ing.
SUMMARY: This document contains
proposed regulations that would modify
rules in the existing regulations relating
to the minimum funding requirement
applicable to single-employer defined
benefit pension plans. The modifications
include changes to the rules relating to
the determination of a plan’s target nor-
mal cost and funding target and would
implement certain statutory amendments
that have not yet been reflected in the
regulations. These proposed regulations
would affect participants in, beneficiaries
of, employers maintaining, and adminis-
trators of single-employer defined benefit
plans.
DATES: Written or electronic comments
and requests for a public hearing must be
received by October 19, 2026.
ADDRESSES: Commenters are strongly
encouraged to submit public comments

September 14, 2026 334 Bulletin No. 2026–38
electronically. Submit electronic submis-
sions via the Federal eRulemaking Portal
at https://www.regulations.gov (indicate
IRS and REG-107855-25) by following
the online instructions for submitting com-
ments. Requests for a public hearing must
be submitted as prescribed in the “Com-
ments and Requests for a Public Hearing”
section. Once submitted to the Federal
eRulemaking Portal, comments cannot be
edited or withdrawn. The Department of
the Treasury (Treasury Department) and
the IRS will publish for public availability
any comment received to its public docket.
Send paper submissions to: CC:PA:01:PR
(REG-107855-25), room 5203, Internal
Revenue Service, P.O. Box 7604, Ben
Franklin Station, Washington, DC 20044.
FOR FURTHER INFORMATION
CONTACT: Concerning the proposed
regulations, Tom Morgan at (202) 317-
6700; concerning submissions of com-
ments and requests for a public hearing,
contact the Publications and Regulations
Section at (202) 317-6901 (not a toll-free
number) or by email to publichearings@
irs.gov (preferred).
SUPPLEMENTARY INFORMATION:
Authority
The proposed regulations are issued
under the delegation of authority in sec-
tion 430(g)(3)(B) of the Internal Revenue
Code (Code), which provides that a plan
may determine the value of plan assets on
the basis of the averaging of fair market
values, but only if that method is permit-
ted under regulations prescribed by the
Secretary of the Treasury or the Secre-
tary’s delegate (Secretary); and section
430(h)(3), which provides that, generally,
the Secretary shall prescribe by regulation
mortality tables to be used in determining
any present value or making any compu-
tation under section 430.
In addition, the proposed regulations
are issued under the delegation of author-
ity in section 7805. Section 7805(a)
directs the Secretary of the Treasury or his
delegate to prescribe all needful rules and
regulations for the enforcement of that
section and other provisions of the Code,
including such rules and regulations as
may be necessary by reason of any alter-
ation of law relating to internal revenue.
Background
This document contains proposed
amendments to the Income Tax Regula-
tions (26 CFR part 1) under section 430 of
the Code, which was added by the Pension
Protection Act of 2006, Public Law 109-
280, 120 Stat. 780 (2006). The proposed
amendments to the regulations primarily
reflect changes to section 430 of the Code
made by: (1) the Worker, Retiree, and
Employer Recovery Act of 2008 (WRERA
‘08), Public Law 110-458, 122 Stat. 5092
(2008); (2) the Setting Every Community
Up for Retirement Enhancement Act of
2019 (SECURE Act), Division O of the
Further Consolidated Appropriations Act,
2020, Public Law 116-94, 133 Stat. 2534
(2019); and (3) the SECURE 2.0 Act of
2022 (SECURE 2.0 Act), Division T of
the Consolidated Appropriations Act,
2023, Public Law 117-328, 136 Stat. 4459
(2022).
A. Plan qualification timing rules under
section 401(b)
Section 401(b)(1), as amended by sec-
tion 201 of the SECURE Act, provides
that a plan is considered as satisfying
the qualification requirements of section
401(a) for the period beginning with the
date on which it was put into effect, or for
the period beginning with the earlier of the
date on which there was adopted or put
into effect any amendment that caused the
plan to fail to satisfy those requirements,
and ending with the time prescribed by
law for filing the return of the employer
for his taxable year in which the plan or
amendment was adopted (including exten-
sions) or any later time as the Secretary
may designate, if all provisions of the plan
that are necessary to satisfy those require-
ments are in effect by the end of that
period and have been made effective for
all purposes for the whole of that period.
Section 401(b)(2), as added by section
201 of the SECURE Act and amended
by Section 317 of the SECURE 2.0 Act,
provides that if an employer adopts a plan
after the close of a taxable year but before
the time prescribed by law for filing the
return of the employer for the taxable year
(including extensions), then the employer
may elect to treat the plan as having been
adopted as of the last day of the taxable
year.
Section 401(b)(3), as added by Section
316 of the SECURE 2.0 Act, provides
that if (A) an employer amends a plan
to increase benefits accrued under the
plan effective as of any date during the
immediately preceding plan year (other
than increasing the amount of match-
ing contributions), (B) that amendment
would not otherwise cause the plan to fail
to meet any of the requirements of sec-
tions 401 through 436 of the Code, and
(C) that amendment is adopted before
the time prescribed by law for filing the
return of the employer for the taxable year
(including extensions) which includes the
effective date of the amendment, then the
employer may elect to treat that amend-
ment as having been adopted as of the last
day of the plan year in which the amend-
ment is effective.
Section 1.401(b)-1 provides rules
regarding remedial amendments under
section 401(b). Under § 1.401(b)-1(a),
a plan that does not satisfy the require-
ments of section 401(a) on any date solely
as a result of a disqualifying provision
(as determined under § 1.401(b)-1(b)) is
considered to have satisfied those require-
ments on that date if, on or before the end
of the remedial amendment period (as
defined in § 1.401(b)-1(d) through (f) with
respect to the disqualifying provision), all
provisions of the plan that are necessary
to satisfy all requirements under section
401(a) are in effect and have been made
effective for all purposes for the entire
remedial amendment period. The second
sentence of § 1.401(b)-1(a) notes that
under some facts and circumstances, it
may not be possible to amend a plan retro-
actively so that all provisions of the plan
which are necessary to satisfy the require-
ments of section 401(a) are in fact made
effective for the whole remedial amend-
ment period.
1
1
In these circumstances, the plan would have to be operated in accordance with the expected future amendment prior to when the amendment is adopted.

Bulletin No. 2026–38 335 September 14, 2026
Pursuant to § 1.401(b)-1(d)(2), the
remedial amendment period gener-
ally ends with the time prescribed by
law, including extensions, for filing the
income tax return (or partnership return of
income) of the employer for the employ-
er’s taxable year in which falls the latest
of: (1) the date on which the remedial
amendment period begins, (2) the date
on which the disqualifying provision is
adopted, or (3) the date on which the dis-
qualifying provision is made effective.
However, under § 1.401(b)-1(d)(2), the
Commissioner may extend the remedial
amendment period.
Revenue Procedure 2022-40, 2022-47
I.R.B. 487, extended the expiration of the
remedial amendment period for a disquali-
fying provision with respect to a provision
of a new plan or the absence of a provision
from a new plan to the last day of the sec-
ond calendar year following the calendar
year in which the plan is put into effect. In
addition, many deadlines for plan amend-
ments made pursuant to specific legisla-
tive changes have been further extended
in the corresponding legislation. See, for
example, section 501 of the SECURE 2.0
Act.
B. Minimum funding requirements and
related provisions for single-employer
defined benefit plans
Statutory provisions
Section 412 provides minimum fund-
ing requirements that generally apply for
pension plans (including both defined
benefit pension plans and money purchase
pension plans). Pursuant to section 412(a)
(2)(A), section 430 specifies the mini-
mum funding requirements that apply to
single-employer defined benefit pension
plans (including multiple-employer plans)
other than CSEC plans described in sec-
tion 414(y).
Section 412(d)(1) provides that if the
funding method or a plan year for a plan
is changed, the change will take effect
only if approved by the Secretary.
2
Sec-
tion 412(d)(2) provides that, for purposes
of section 412, any amendment applying
to a plan year which is adopted no later
than 2½ months after the close of the plan
year (or, in the case of a multiemployer
plan, no later than 2 years after the close
of such plan year), does not reduce the
accrued benefit of any participant deter-
mined as of the beginning of the first plan
year to which the amendment applies, and
does not reduce the accrued benefit of any
participant determined as of the time of
adoption except to the extent required by
the circumstances, will, at the election of
the plan administrator, be deemed to have
been made on the first day of the plan year.
Under section 430, the minimum
required contribution for a plan year is a
function of the target normal cost under
section 430(b)(1), shortfall amortization
charge under section 430(c)(1), funding
target under section 430(d)(1), waiver
amortization charge under section 430(e)
(1), and value of plan assets under section
430(g)(3). If the value of plan assets (less
the sum of the plan’s prefunding balance
and funding standard carryover balance
determined under section 430(f)) is less
than the funding target, section 430(a)
(1) defines the minimum required con-
tribution as the sum of the plan’s target
normal cost and the shortfall and waiver
amortization charges for the plan year. If
the value of plan assets (less the sum of
the plan’s prefunding balance and fund-
ing standard carryover balance) equals or
exceeds the funding target, section 430(a)
(2) defines the minimum required contri-
bution as the plan’s target normal cost for
the plan year reduced (but not below zero)
by the amount of any such excess.
Section 430(b)(1) as amended by
WRERA ‘08, provides that, except as
otherwise provided in section 430(i)(2)
(regarding a plan that is in at-risk sta-
tus), a plan’s target normal cost for a plan
year is the sum of the present value of all
benefits expected to accrue or be earned
under the plan during the plan year (with
any increase in any benefit attributable to
services performed in a preceding plan
year by reason of a compensation increase
during the current plan year treated as
having accrued during the current plan
year) and the amount of plan-related
expenses expected to be paid from plan
assets during the plan year, reduced by the
amount of mandatory employee contribu-
tions expected to be made during the plan
year.
Section 430(d)(1) provides that, except
as otherwise provided in section 430(i)(1)
(regarding a plan that is in at-risk status),
a plan’s funding target for a plan year is
the present value of all benefits accrued or
earned under the plan as of the beginning
of the plan year.
Under section 430(h)(5), if, with
respect to a single-employer defined ben-
efit plan, the aggregate unfunded vested
benefits as of the close of the preceding
plan year (combined with the unfunded
vested benefits for all other plans main-
tained by the contributing sponsors and
members of such sponsors’ controlled
groups) exceeded $50 million, then cer-
tain changes in actuarial assumptions
must be approved by the Secretary. The
changes in actuarial assumptions that
require approval are changes that result in
a decrease in the funding shortfall of the
plan for the current plan year (determined
after taking into account any changes
in interest rate and mortality table) that
exceeds $50 million (or that exceeds $5
million and that is 5 percent or more of
the funding target of the plan before that
change).
Section 404(o)(6) provides that any
computations under section 404(o), which
relates to the deduction for contributions
to a single-employer defined benefit plan,
must use the same actuarial assumptions
that are used for the plan year under sec-
tion 430, except that the interest rate cor-
ridor under section 430(h)(2)(C)(iv) does
not apply, and section 404(o)(7) provides
that any term used in section 404(o) which
is also used in section 430 has the same
meaning given to that term by section 430.
Thus, except for the difference in interest
rates, the funding target and target normal
cost under section 430 (determined tak-
ing into account plan provisions that are
recognized under the rules of section 430)
are also used to determine the maximum
deductible contributions under section
404(o).
2
The Secretary has prescribed procedures allowing plans subject to section 412 to receive automatic approval to change their funding method in limited circumstances. See Rev. Proc. 2017-56,
2017-44 IRB 465 (applicable to single-employer plans), and Rev. Proc. 2000-40, 2000-42 IRB 357 (applicable to multiemployer plans). The Secretary has also prescribed procedures allowing
plans to receive automatic approval to change their plan year if certain conditions are met. See Rev. Proc. 87-27, 1987-1 CB 769, as amended by Ann. 88-97, 1988-26 IRB 47.

September 14, 2026 336 Bulletin No. 2026–38
Section 436(c)(1) provides that, gen-
erally, no amendment to a defined bene-
fit plan which is a single-employer plan
which has the effect of increasing liabil-
ities of the plan by reason of increases in
benefits, establishment of new benefits,
changing the rate of benefit accrual, or
changing the rate at which benefits become
nonforfeitable may take effect during any
plan year if the adjusted funding target
attainment percentage (AFTAP) for such
plan year is less than 80 percent, or would
be less than 80 percent taking into account
the amendment.
3
However, section 436(c)
(2) provides that such an amendment can
take effect if the plan sponsor makes a
contribution (in addition to the minimum
required contribution) equal to the amount
of the increase in the funding target of the
plan for the plan year attributable to the
amendment (if the AFTAP is less than 80
percent) or (in other cases) the amount
necessary to result in an AFTAP of 80 per-
cent.
Regulatory provisions
On October 15, 2009, final regulations
regarding the determination of the target
normal cost under section 430(b) and the
funding target under section 430(d) were
published in the Federal Register (TD
9467, 74 FR 53004). Those regulations
apply to plan years beginning on or after
January 1, 2010.
Section 1.430(d)-1(b)(1)(i) pro-
vides that, subject to the adjustments in
§ 1.430(d)-1(b)(1)(iii), the target normal
cost of a defined benefit plan that is not
in at-risk status under section 430(i) for a
plan year is the present value (determined
as of the valuation date) of all benefits
under the plan that accrue during, are
earned during, or are otherwise allocated
to service for the plan year.
Section 1.430(d)-1(b)(1)(iii)(A) pro-
vides that the target normal cost of the
plan for the plan year is adjusted (not
below zero) by adding the amount of
plan-related expenses expected to be paid
from plan assets during the plan year and
subtracting the amount of mandatory
employee contributions that are expected
to be made during the plan year. Section
1.430(d)-1(b)(1)(iii)(B) is reserved for a
definition of plan-related expenses.
Under § 1.430(d)-1(d)(1)(i), a plan’s
funding target and target normal cost for a
plan year generally are determined based
on plan provisions that are adopted no
later than the valuation date for the plan
year and that take effect on or before the
last day of the plan year.
Section 1.430(d)-1(d)(1)(ii) provides
rules regarding the impact of an election
under section 412(d)(2), which is available
with respect to a plan amendment adopted
no later than 2½ months after the close of
the plan year (including an amendment
adopted during the plan year). Under
§ 1.430(d)-1(d)(1)(ii), if a plan admin-
istrator makes the election described in
section 412(d)(2) with respect to a plan
amendment, then the plan amendment
is treated as having been adopted on the
first day of the plan year for purposes of
§ 1.430(d)-1(d). However, because a sec-
tion 412(d)(2) election merely deems the
amendment to have been made on the first
day of the plan year, it does not determine
when the plan amendment takes effect.
Accordingly, regardless of whether a sec-
tion 412(d)(2) election is made, an amend-
ment is taken into account for the plan
year only if it takes effect by the last day
of the plan year.
Section 1.430(d)-1(d)(1)(iii) provides
that, for purposes of § 1.430(d)-1(d)(1),
the determination of whether an amend-
ment that increases benefits takes effect
and when it takes effect is determined
in accordance with the rules of section
436(c) and § 1.436-1(c)(5). Section 1.436-
1(c)(5) provides that, for purposes of sec-
tion 436(c) and § 1.436-1(c), in the case
of an amendment that increases benefits,
the amendment takes effect under a plan
on the first date on which any individual
who is or could be a participant or benefi-
ciary under the plan would obtain a legal
right to the increased benefit if the individ-
ual were on that date to satisfy the appli-
cable requirements for entitlement to the
benefit (such as the attainment of any age,
performance of any service, receipt or der-
ivation of any compensation, or the occur-
rence of death, disability, or severance
from employment). Section 1.430(d)-1(d)
(1)(iii) similarly provides that in the case
of an amendment that decreases benefits,
the amendment takes effect under a plan
on the first date on which the benefits of
any individual who is or could be a partic-
ipant or beneficiary under the plan would
be less valuable than those benefits would
be under the pre-amendment plan provi-
sions if the individual were on that date
to satisfy the applicable conditions for the
benefits.
Section 1.430(d)-1(d)(2) provides that,
in the case of a plan amendment that is not
required to be taken into account under
the rules of § 1.430(d)-1(d)(1) because it
is adopted after the valuation date for the
plan year, the plan amendment must be
taken into account in determining a plan’s
funding target and target normal cost for
the plan year if the amendment (i) takes
effect by the last day of the plan year;
(ii) increases the liabilities of the plan by
reason of increases in current benefits,
establishment of new benefits, changing
the rate of benefit accrual, or changing the
rate at which benefits become nonforfeit-
able; and (iii) would not be permitted to
take effect under a modified version of the
rules of section 436(c). The modified ver-
sion of the section 436(c) rules is set forth
in § 1.430(d)-1(d)(2)(iii), which provides
that those rules are applied by treating the
increase in the target normal cost for the
plan year attributable to the amendment
(and all other amendments that must be
taken into account solely because of the
application of the rules in § 1.430(d)-1(d)
(2)) as if the increase were an increase in
the funding target for the plan year, and by
taking into account all unpredictable con-
tingent event benefits permitted to be paid
for unpredictable contingent events that
occurred during the current plan year and
all plan amendments that took effect in the
current plan year (including all amend-
ments to which § 1.430(d)-1(d)(2) applies
for the plan year).
C. Actuarial assumptions
Section 1.430(d)-1(f)(1)(i) provides
that the determination of any present
value or other computation under section
430 and this section must be made on
3
Section 436(c)(3) provides for a limited exception for certain benefit increases under a formula which is not based on a participant’s compensation.

Bulletin No. 2026–38 337 September 14, 2026
the basis of actuarial assumptions and a
funding method. Section 1.430(d)-1(f)(1)
(ii) provides that actuarial assumptions
established for a plan year cannot sub-
sequently be changed for that plan year
unless the Commissioner determines that
the assumptions that were initially used
are unreasonable. Similarly, a funding
method established for a plan year can-
not subsequently be changed for that plan
year unless the Commissioner determines
that the initial use of that funding method
for that plan year is impermissible. Sec-
tion 1.430(d)-1(f)(1)(iii) provides that
generally, the actuarial assumptions and
funding method for a plan year are estab-
lished by the filing of an actuarial report
under section 6059 (Schedule SB of Form
5500, Annual Return/Report of Employee
Benefit Plan).
Section 1.430(d)-1(f)(3) provides that,
in the case of actuarial assumptions other
than those specified in sections 430(h)(2),
430(h)(3), and 430(i), each of those actu-
arial assumptions must be reasonable (tak-
ing into account the experience of the plan
and reasonable expectations). In addition,
the actuarial assumptions (other than those
specified in sections 430(h)(2), 430(h)(3),
and 430(i)) must, in combination, offer
the plan’s enrolled actuary’s best estimate
of anticipated experience under the plan
based on information determined as of the
valuation date.
Section 1.430(d)-1(f)(4)(ii) provides
that any determination of present value or
any other computation under that section
must take into account the probability that
future benefit payments under the plan will
be made in the form of any optional form
of benefit provided under the plan (includ-
ing single-sum distributions), determined
on the basis of the plan’s experience and
other related assumptions, in accordance
with § 1.430(d)-1(f)(3); and must take into
account any difference in the present value
of future benefit payments that results
from the use of actuarial assumptions in
determining the amount of benefit pay-
ments in any such optional form of benefit
that are different from those prescribed by
section 430(h).
Section 1.430(d)-1(f)(4)(iii)(A) pro-
vides that, in the case of a distribution that
is subject to section 417(e)(3) and that is
determined using the applicable interest
rates and applicable mortality table under
section 417(e)(3), for purposes of apply-
ing § 1.430(d)-1(f)(4)(ii), the computation
of the present value of that distribution is
treated as having taken into account any
difference in present value that results
from the use of actuarial assumptions
that are different from those prescribed
by section 430(h) (as required under
§ 1.430(d)-1(f)(4)(ii)(B)) if and only if the
present value of the distribution is deter-
mined in accordance with § 1.430(d)-1(f)
(4)(iii).
Section 1.430(d)-1(f)(4)(iii)(B) pro-
vides that, generally, the present value of
a distribution is determined in accordance
with § 1.430(d)-1(f)(4)(iii) if that present
value is determined as the present value,
using special actuarial assumptions, of the
annuity (either the deferred or immediate
annuity) which is used under the plan to
determine the amount of the distribution.
Under these special assumptions, for the
period beginning with the expected annu-
ity starting date for the distribution, the
current applicable mortality table under
section 417(e)(3) that would apply to a
distribution with an annuity starting date
occurring on the valuation date is substi-
tuted for the mortality table under section
430(h)(3) that would otherwise be used. In
addition, under these special assumptions,
the valuation interest rates under section
430(h)(2) are used for purposes of dis-
counting the projected annuity payments
from their expected payment dates to the
valuation date (as opposed to the interest
rates under section 417(e)(3), which the
plan uses to determine the amount of the
benefit).
Section 1.430(d)-1(f)(4)(iii)(C) pro-
vides some alternative assumptions
that may be used in determining the
present value of a distribution under
§ 1.430(d)-1(f)(4)(iii). In the case of a
plan for which the generational mortal-
ity tables are generally used to determine
present values under section 430(d),
§ 1.430(d)-1(f)(4)(iii)(C) allows for the
use of a 50-50 male-female blend of
the annuitant mortality rates under the
§ 1.430(h)(3)-1(a)(4) generational mortal-
ity tables in lieu of the applicable mortal-
ity table under section 417(e)(3).
4
Section
1.430(d)-1(f)(4)(iii)(C) also provides that
adjustments to interest rates are permit-
ted to take into account the differences
between the phase-in of the section 430(h)
(2) segment rates under section 430(h)(2)
(G) and the adjustments to the segment
rates under section 417(e)(3)(D)(iii).
Section 1.430(d)-1(f)(5)(i) provides
that, in the case of an applicable defined
benefit plan described in section 411(a)
(13)(C), if the amount of a future distri-
bution is based on an interest adjustment
applied to the current accumulated bene-
fit, then the amount of that distribution is
determined by projecting the future inter-
est credits or equivalent amount under the
plan’s interest crediting rules using actu-
arial assumptions that satisfy the require-
ments of § 1.430(d)-1(f)(3).
Section 1.430(d)-1(f)(5)(ii)(A) pro-
vides that, in the case of an applicable
defined benefit plan described in section
411(a)(13)(C), if the amount of an annuity
distribution is based on either the balance
of a hypothetical account maintained for
a participant or the accumulated percent-
age of a participant’s final average com-
pensation, then the amount of that annuity
distribution is calculated by converting
the projected account balance (or accumu-
lated percentage of final average compen-
sation), in accordance with § 1.430(d)-1(f)
(5)(i), to an annuity by applying the plan’s
annuity conversion provisions using the
rules of § 1.430(d)-1(f)(5)(ii).
Section 1.430(d)-1(f)(5)(ii)(B) pro-
vides that generally, if the plan bases the
conversion of the projected account bal-
ance (or accumulated percentage of final
average compensation) to an annuity using
the applicable interest rates and applica-
ble mortality table under section 417(e)
(3), then the amount of the annuity distri-
bution is determined by dividing the pro-
jected account balance (or accumulated
percentage of final average compensation)
4
The applicable mortality table under section 417(e)(3) is a projected static mortality table, based on the mortality table specified for the plan year under section 430(h)(3)(A) (without regard
to section 430(h)(3)(C) or (D)), modified as appropriate by the Secretary.

September 14, 2026 338 Bulletin No. 2026–38
by an annuity factor corresponding to the
assumed form of payment using, for the
period beginning with the annuity starting
date, the current applicable mortality table
under section 417(e)(3) that would apply to
a distribution with an annuity starting date
occurring on the valuation date (in lieu of
the mortality table under section 430(h)(3)
that would otherwise be used) and the val-
uation interest rates under section 430(h)
(2) (as opposed to the interest rates under
section 417(e)(3) which the plan uses to
determine the amount of the annuity).
Section 1.430(d)-1(f)(5)(ii)(C) pro-
vides that, in determining the amount of an
annuity distribution under § 1.430(d)-1(f)
(5)(ii)(B), a plan is permitted to apply
the optional applications of generational
mortality and phase-in of interest rates
described in § 1.430(d)-1(f)(4)(iii)(C).
Explanation of Provisions
These proposed regulations would
facilitate the adoption of amendments that
increase benefits. Under these proposed
regulations, such amendments adopted
after the end of the plan year can be taken
into account in determining the actuar-
ial results for a plan year which, in turn,
will result in an increased deductible limit
for the taxable year for the plan sponsor.
These proposed regulations would also:
(1) clarify the plan-related expenses that
are includable in target normal cost; (2)
provide rules for plans that are adopted
after the end of a plan year; (3) provide
rules for when certain plan amendments
must be taken into account in the actuar-
ial results for a plan year; (4) extend the
deadline for making certain changes in
actuarial assumptions or funding methods;
and (5) make minor changes to the rules
for actuarial assumptions to eliminate ref-
erences to statutory provisions that are no
longer applicable and to conform them to
other regulatory provisions.
A. Investment-Related Expenses Not
Included in Target Normal Cost
Proposed § 1.430(d)-1(b)(1)(iii)(B)
would provide that plan-related expenses
consist of all amounts that are expected to
be paid from plan assets that are neither
benefits paid to participants and beneficia-
ries (treating the purchase of an annuity
as the payment of benefits), nor invest-
ment-related expenses described in pro-
posed § 1.430(d)-1(b)(1)(iii)(C).
Proposed § 1.430(d)-1(b)(1)(iii)(C)
would provide that investment-related
expenses consist of investment manager
fees and other expenses directly related to
the investment of the plan’s assets. How-
ever, if the total payments from plan assets
to a service provider are expected to be
$5,000 or more for a plan year and con-
sist of both investment-related expenses
and expenses for other services (such
as recordkeeping services), only those
amounts that the service provider itemizes
as investment management fees or other
expenses directly related to the investment
of the plan’s assets are treated as invest-
ment-related expenses. Amounts itemized
as expenses for other services are not
treated as investment-related expenses.
5

An example of other services would be if
the assets of the pension fund are held by
a bank or trust company affiliated with the
fund’s investment manager and the plan
assets are used to pay custodial or trustee
fees for the safekeeping of the investment
assets, such as holding securities, settling
trades, or collecting income. This exclu-
sion means that if the total payments
from plan assets to a service provider are
expected to be less than $5,000, all pay-
ments are treated as investment-related
expenses and the service provider does
not need to itemize the expenses in order
for the plan to exclude these payments
from target normal cost.
B. Plans or Plan Amendments That Are
Adopted after the End of the Plan Year
Proposed § 1.430(d)-1(d)(1) would
provide rules for which plan provisions
are used to determine a plan’s funding tar-
get and target normal cost for a plan year
based on when the plan provisions were
adopted and, if applicable, what election
the plan administrator made. For plan
provisions adopted by the plan’s valua-
tion date, proposed § 1.430(d)-1(d)(1)(i)
would provide that, except as otherwise
provided in proposed § 1.430(d)-1(d)(1)
(ii) and (iii), a plan’s funding target and
target normal cost for a plan year are
determined based on plan provisions that
are adopted no later than the valuation date
for the plan year and that take effect on or
before the last day of the plan year. For
example, in the case of a plan amendment
adopted on or before the valuation date for
the current plan year that has an effective
date occurring in the current plan year, the
plan amendment is taken into account in
determining the funding target and the tar-
get normal cost for the current plan year
if it is permitted to take effect under the
rules of section 436(c) for the current plan
year, but the amendment is not taken into
account for the current plan year if it does
not take effect until a future plan year.
For plan provisions adopted after
the plan’s valuation date, the rules that
apply are determined by the election
made by the plan administrator. Pro-
posed § 1.430(d)-1(d)(1)(ii)(A) would
provide that if the plan administrator
makes an election under section 412(d)(2)
with respect to a plan amendment that is
adopted no later than 2½ months after the
end of the plan year, then the plan amend-
ment will be taken into account in deter-
mining the plan’s funding target and target
normal cost for that plan year, provided
that the plan amendment takes effect no
later than the date it is adopted. This rule
would apply even if the plan amendment
were adopted during the plan year, consis-
tent with prior revenue rulings.
6
Proposed § 1.430(d)-1(d)(1)(ii)(B)
would provide that if an employer adopts
a plan after the last day of the employ-
er’s taxable year and before the due date
for the employer’s income tax return for
that taxable year (including extensions)
and makes an election under the first sen-
tence of section 401(b)(2), then the plan is
treated as adopted on the last day of that
taxable year. In such a case, the target nor-
mal cost and funding target for the plan’s
first plan year are determined based on the
adopted plan provisions, provided that (1)
the plan takes effect no later than the date
5
This $5,000 threshold is consistent with the reporting requirement on Form 5500, Schedule C for service providers who have rendered services to, or who had transactions with, the plan
during the reporting year if the service provider received, directly or indirectly, $5,000 or more in reportable compensation in connection with services rendered or their position with the plan.
6
See, for example, Rev. Rul. 79-325, 1979-2 C.B. 190.

Bulletin No. 2026–38 339 September 14, 2026
the plan is adopted; and (2) if the plan’s
valuation date is before the date the plan is
treated as being adopted, a section 412(d)
(2) election is made.
Proposed § 1.430(d)-1(d)(1)(ii)(C)
would provide that if, before the due date
(including extensions) for an employer’s
income tax return for a taxable year, the
employer adopts an amendment increas-
ing benefits accrued under a plan effective
as of any date during the plan year that
immediately precedes the date of adop-
tion, and makes an election under section
401(b)(3) with respect to the plan amend-
ment, then the plan amendment is treated
as having been adopted as of the last day
of that preceding plan year. In such a
case, the target normal cost and funding
target for that preceding plan year are
determined taking the plan amendment
into account, provided that (1) the amend-
ment takes effect no later than the date it
is adopted, and (2) if the plan’s valuation
date is before the date the amendment is
treated as being adopted, a section 412(d)
(2) election is made.
Employers that make an election under
either section 401(b)(2) or section 401(b)
(3) should note that the deadline for mini-
mum required contributions under section
430(j)(1) is 8½ months after the end of the
plan year, while the deadline for adopt-
ing a section 401(b)(2) or section 401(b)
(3) amendment under either proposed
§ 1.430(d)-1(d)(1)(ii)(B) or (C) can be
after that deadline, depending on the tim-
ing of the plan year and the employer’s
taxable year.
C. Remedial Amendments
Proposed § 1.430(d)-1(d)(1)(iii) would
provide rules under which certain planned
amendments are taken into account once
plan operations are changed pursuant to
those planned amendments. The exist-
ing rule in § 1.430(d)-1(d)(1)(iii) would
be revised as § 1.430(d)-1(d)(1)(iv) and
is discussed later in part C of this Expla-
nation of Provisions. Under proposed
§ 1.430(d)-1(d)(1)(iii)(A), if plan oper-
ations are changed during a remedial
amendment period (within the meaning of
§ 1.401(b)-1(d)) to make effective a future
remedial amendment, then the provisions
of the future remedial amendment would
be treated as adopted on the date that the
plan operations are changed. To the extent
the actual remedial amendment that is
adopted is different from the way the plan
has been operated, the actual remedial
amendment is treated as adopted when
plan operations are changed to reflect
the actual remedial amendment (if that
change in plan operations occurs before
the adoption date of the amendment). For
example, this could happen in the case of a
plan that is operated in accordance with a
statutory change and then plan operations
are updated to reflect published guidance
interpreting that statutory change.
Proposed § 1.430(d)-1(d)(1)(iii)(B)
would provide that a plan makes effec-
tive a future remedial amendment when
(1) it is required to be amended to address
a disqualifying provision that has been
designated as such by the Commissioner
pursuant to § 1.401(b)-1(b)(3), (2) the
remedial amendment period with respect
to that required amendment has not ended,
and (3) plan operations are changed in
anticipation of a proposed amendment to
the plan relating to the disqualifying pro-
vision.
Proposed § 1.430(d)-1(d)(1)(iv) would
provide substantially the same rule as
existing § 1.430(d)-1(d)(1)(iii). However,
proposed § 1.430(d)-1(d)(1)(iv) would
not include the existing language regard-
ing the effect of an election made under
section 412(d)(2), as that issue would
be separately addressed in proposed
§ 1.430(d)-1(d)(1)(ii)(A).
D. Anti-Abuse Rule for Mid-Year
Amendments that Increase Target Normal
Cost Disproportionately
Proposed § 1.430(d)-1(d)(2)(i) would
modify the special rule in existing
§ 1.430(d)-1(d)(2) under which certain
plan amendments that are not required to
be taken into account under the rules of
§ 1.430(d)-1(d)(1), because the amend-
ment is adopted after the valuation date
for the plan year, must nonetheless be
taken into account in determining a plan’s
funding target and target normal cost for
the plan year. A plan amendment would
be subject to this rule if it (1) increases
the liabilities of the plan by reason of
increases in current benefits, establish-
ment of new benefits, changing the rate
of benefit accrual, or changing the rate
at which benefits become nonforfeitable;
(2) would not be permitted to take effect
under the rules of section 436 as described
in proposed § 1.430(d)-1(d)(2)(ii); and
(3) would increase the target normal
cost disproportionately, as described in
§ 1.430(d)-1(d)(2)(iii).
Under proposed § 1.430(d)-1(d)(2)(i)
(C), the anti-abuse rule in § 1.430(d)-1(d)
(2) would apply only if the plan amend-
ment increases the target normal cost
disproportionately. For this purpose, pro-
posed § 1.430(d)-1(d)(2)(iii) would pro-
vide that a plan amendment increases the
target normal cost disproportionately if
the percentage increase in target normal
cost as the result of the amendment is
more than twice the percentage increase in
the funding target as a result of the amend-
ment (taking into account only the bene-
fits of participants currently employed in
the service of the employer). Comments
are requested regarding other appropri-
ate methods of measuring whether a plan
amendment is considered to increase the
target normal cost disproportionately,
such as by comparing the present value
of current year accruals with the present
value of accruals in succeeding plan years.
E. Change in Actuarial Assumptions or
Funding Method
Proposed § 1.430(d)-1(f)(1)(ii) would
revise the existing rule in § 1.430(d)-1(f)
(1)(ii) to address the situation in which an
application to change actuarial assump-
tions or funding method has been submit-
ted to the Secretary,
7
but the Secretary has
not yet approved the application when the
assumptions or method are established
for the plan year. In these situations, the
proposed regulations would be amended
to provide that the assumptions or fund-
ing method can be changed for that plan
7
Rev. Proc. 2017-57, 2017-44 I.R.B. 474, sets forth the procedure for obtaining approval by the IRS for a change in the funding method or actuarial assumptions used for a single-employer
defined benefit plan.

September 14, 2026 340 Bulletin No. 2026–38
year in accordance with the Secretary’s
approval of that application.
F. Other Rules Regarding Actuarial
Assumptions
Proposed § 1.430(d)-1(f)(4)(iii)
(C) would provide rules for determin-
ing the present value of a distribution
under § 1.430(d)-1(f)(4)(iii) that are sub-
stantially the same as a rule in existing
§ 1.430(d)-1(f)(4)(iii)(C). However, the
proposed rule would not include the exist-
ing reference to the phase-in of the section
430(h)(2) segment rates that applied under
section 430(h)(2)(G) for plan years begin-
ning in 2008 or 2009.
Proposed § 1.430(d)-1(f)(5)(i) and (f)
(5)(ii)(A) are substantially the same as the
corresponding provisions in the existing
regulations but would make conforming
edits to update the terminology used in
those provisions to conform to the termi-
nology used in § 1.411(a)(13)-1.
Proposed § 1.430(d)-1(f)(5)(ii)(C)
would provide that the option under
§ 1.430(d)-1(f)(4)(iii)(C) to substitute
the generational mortality table may be
used for purposes of determining the
amount of an annuity distribution under
§ 1.430(d)-1(f)(5)(ii)(B). This provi-
sion is substantially the same as existing
§ 1.430(d)-1(f)(5)(ii)(C), except that the
heading would be revised to reflect that
the option to adjust the present values to
take into account the phase-in of segment
rates under section 430(h)(2)(G) is no lon-
ger applicable.
Proposed Applicability Date
The regulations are proposed to apply
to plan years beginning on or after 6
months after the date of publication of the
Treasury decision adopting these amend-
ments to the regulations as final regula-
tions in the Federal Register.
Special Analyses
I. Regulatory Planning and Review—
Economic Analysis
OMB’s Office of Information and
Regulatory Affairs has determined that
this proposed rule is not significant and is
not subject to review under section 6(b)
of Executive Order 12866, as amended.
This proposed rule is expected to be an
Executive Order 14192 deregulatory
action.
II. Paperwork Reduction Act
This proposed rulemaking does not
impose or revise any information collec-
tions subject to 44 U.S.C. Chapter 35.
III. Regulatory Flexibility Act
The Regulatory Flexibility Act requires
consideration of the regulatory impact on
small businesses. It is hereby certified that
these proposed regulations, if adopted,
will not have a significant economic
impact on a substantial number of small
entities within the meaning of section
601(6) of the Regulatory Flexibility Act
(5 U.S.C. chapter 6).
The economic impact of these reg-
ulations is not expected to be signifi-
cant. These regulations are not expected
to result in economically meaningful
changes in behavior. They would update
existing regulations in order to imple-
ment statutory changes enacted after the
publication of the 2009 regulations. They
provide guidance for administrators and
sponsors of single-employer defined ben-
efit plans regarding the determination of
target normal cost and the funding target.
For the reasons stated, a regulatory
flexibility analysis under the Regulatory
Flexibility Act is not required. Notwith-
standing the above, the Treasury Depart-
ment and the IRS invite comments on the
impact the proposed rules would have on
small entities.
Pursuant to section 7805(f) of the
Code, this notice of proposed rulemaking
will be submitted to the Chief Counsel for
Advocacy of the Small Business Adminis-
tration for comment on its impact on small
business.
IV. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates
Reform Act of 1995 requires that agencies
assess anticipated costs and benefits and
take certain other actions before issuing a
final rule that includes any Federal man-
date that may result in expenditures in any
one year by a State, local, or Tribal gov-
ernment, in the aggregate, or by the pri-
vate sector, of $100 million in 1995 dol-
lars, updated annually for inflation. The
proposed regulations do not include any
Federal mandate that may result in expen-
ditures by State, local, or Tribal govern-
ments, or by the private sector in excess of
that threshold.
V. Executive Order 13132: Federalism
Executive Order 13132 (entitled Feder-
alism) prohibits an agency from publish-
ing any rule that has federalism implica-
tions if the rule either imposes substantial,
direct compliance costs on State and
local governments, and is not required
by statute, or preempts State law, unless
the agency meets the consultation and
funding requirements of section 6 of the
Executive order. The proposed regulations
do not have federalism implications, do
not impose substantial direct compliance
costs on State and local governments, and
do not preempt State law within the mean-
ing of the Executive order.
Comments and Requests for a Public
Hearing
Before these proposed amendments to
the final regulations are adopted as final
regulations, consideration will be given
to comments that are submitted timely
to the IRS as prescribed in this preamble
under the ADDRESSES heading. The
Treasury Department and the IRS request
comments on all aspects of the proposed
regulations. Any comments submitted will
be made available at https://www.regula-
tions.gov or upon request.
A public hearing will be scheduled if
requested in writing by any person who
timely submits electronic or written com-
ments. Requests for a public hearing are
also encouraged to be made electronically.
If a public hearing is scheduled, notice of
the date and time for the public hearing
will be published in the Federal Register.
Drafting Information
The principal author of these proposed
regulations is Tom Morgan of the Office
of Associate Chief Counsel (Employee
Benefits, Exempt Organizations, and
Employment Taxes). However, other per-

Bulletin No. 2026–38 341 September 14, 2026
sonnel from the Treasury Department and
the IRS participated in their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and record-
keeping requirements.
Proposed Amendments to the
Regulations
Accordingly, the Treasury Department
and IRS propose to amend 26 CFR part 1
as follows:
Paragraph 1. The authority citation
for part 1 continues to read in part as fol-
lows:
Authority: 26 U.S.C. 7805 * * *
* * * * *
Section 1.430(d)-1 is also issued under 26
U.S.C 430(g)(3)(B) and 26 U.S.C. 430(h)
(2).
* * * * *
Par. 2. Section 1.430(d)-1 is amended
by:
1. Revising paragraph (b)(1)(iii)(B).
2. Adding paragraph (b)(1)(iii)(C).
3. Revising and republishing para-
graphs (d)(1) and (2).
4. Revising paragraphs (f)(1)(ii) and
(f)(4)(iii)(C).
5. Revising paragraph (f)(5)(i).
6. Revising paragraphs (f)(5)(ii)(A)
and (C) and (g).
The revisions and additions read as fol-
lows:
§ 1.430(d)-1 Determination of target
normal cost and funding target.
* * * * *
(b) * * *
(1) * * *
(iii) * * *
(B) Plan-related expenses. For pur-
poses of this paragraph (b)(1)(iii), plan-re-
lated expenses consist of all amounts that
are expected to be paid from plan assets
that are neither benefits paid to participants
or beneficiaries (treating the purchase
of an annuity contract as the payment of
benefits) nor investment-related expenses
described in paragraph (b)(1)(iii)(C) of
this section. Plan-related expenses include
fees paid for professional services (such
as legal, actuarial, and audit services),
plan administration, and premiums paid
to the Pension Benefit Guaranty Corpora-
tion, among other items.
(C) Investment-related expenses. Invest-
ment-related expenses consist of invest-
ment management fees and other expenses
directly related to the investment of the
plan’s assets. However, if the total pay-
ments from plan assets to a service provider
are expected to be $5,000 or more for a
plan year and consist of investment-related
expenses and expenses for other services
(such as recordkeeping services), only
those amounts that the service provider
itemizes as investment management fees
or other expenses directly related to the
investment of the plan’s assets are treated
as investment-related expenses. Amounts
itemized as expenses for other services are
not treated as investment-related expenses.
* * * * *
(d) Plan provisions taken into
account--(1) General rule--(i) Plan pro-
visions adopted by valuation date. Except
as otherwise provided in paragraphs (d)
(1)(ii) and (iii), and (d)(2) of this section,
a plan’s funding target and target normal
cost for a plan year are determined based
on plan provisions that are adopted no
later than the valuation date for the plan
year and that take effect on or before the
last day of the plan year. For example, in
the case of a plan amendment adopted on
or before the valuation date for the cur-
rent plan year that has an effective date
occurring in the current plan year, the
plan amendment is taken into account in
determining the funding target and the tar-
get normal cost for the current plan year
if it is permitted to take effect under the
rules of section 436(c) for the current plan
year, but the amendment is not taken into
account for the current plan year if it does
not take effect until a future plan year.
(ii) Plan provisions adopted after val-
uation date--(A) Impact of section 412(d)
(2) election. If the plan administrator
makes an election under section 412(d)(2)
with respect to a plan amendment that is
adopted no later than 2½ months after the
end of a plan year, then the amendment will
be taken into account in determining the
plan’s funding target and target normal cost
for that plan year, provided that the amend-
ment takes effect no later than the date the
amendment is adopted. The preceding sen-
tence applies even if the plan amendment is
adopted during the plan year.
(B) Impact of section 401(b)(2) elec-
tion. If an employer adopts a plan after
the last day of the employer’s taxable year
and before the due date for the employ-
er’s income tax return for that taxable
year (including extensions) and makes an
election under the first sentence of sec-
tion 401(b)(2), then the plan is treated
as adopted on the last day of that taxable
year. In such a case, the target normal cost
and funding target for the plan’s first plan
year are determined based on the adopted
plan provisions, provided that--
(1) The plan takes effect no later than
the date the plan is adopted; and
(2) If the plan’s valuation date is
before the date the plan is treated as being
adopted, a section 412(d)(2) election is
made.
(C) Impact of section 401(b)(3) elec-
tion. If, before the due date (including
extensions) for an employer’s income tax
return for a taxable year, the employer
adopts an amendment increasing benefits
accrued under a plan effective as of any
date during the plan year that immediately
precedes the date of adoption, and makes
an election under section 401(b)(3) with
respect to the plan amendment, then the
plan amendment is treated as having been
adopted as of the last day of that preceding
plan year. In such a case, the target normal
cost and funding target for that preceding
plan year are determined taking the plan
amendment into account, provided that--
(1) The amendment takes effect no
later than the date it is adopted; and
(2) If the plan’s valuation date is before
the date the amendment is treated as being
adopted, a section 412(d)(2) election is
made.
(iii) Special rule to reflect plan oper-
ations during a remedial amendment
period--(A) Requirement to reflect future
remedial amendment. For purposes of
this paragraph (d), if plan operations
are changed during a remedial amend-
ment period (within the meaning of
§ 1.401(b)-1(d)) to make effective a future
remedial amendment, then the provisions
of the future remedial amendment are
treated as adopted on the date that the plan
operations are changed. To the extent the
language of the plan’s remedial amend-
ment differs from the way the plan was
operated at any point during the remedial
amendment period, the remedial amend-

September 14, 2026 342 Bulletin No. 2026–38
ment is treated as adopted only when plan
operations were changed to reflect the lan-
guage ultimately adopted in that amend-
ment.
(B) Future remedial amendment. A
plan makes effective a future remedial
amendment when--
(1) The plan is required to be amended
to address a disqualifying provision that
has been designated as such by the Com-
missioner pursuant to § 1.401(b)-1(b)(3),
(2) The remedial amendment period
with respect to that required amendment
has not ended, and
(3) Plan operations are changed in
anticipation of a proposed amendment to
the plan relating to the disqualifying pro-
vision.
(iv) Determination of when an amend-
ment takes effect. For purposes of this
paragraph (d)(1)--
(A) The determination of whether an
amendment that increases benefits takes
effect and when it takes effect is made
in accordance with the rules of section
436(c) and § 1.436-1(c)(5); and
(B) In the case of an amendment that
decreases benefits, the amendment takes
effect under a plan on the first date on
which the benefits of any individual who
is or could be a participant or beneficiary
under the plan would be less valuable
than those benefits would be under the
pre-amendment plan provisions if the
individual were on that date to satisfy the
applicable conditions for the benefits.
(2) Special rule for certain amendments
increasing liabilities--(i) In general. In the
case of a plan amendment that takes effect
by the last day of the plan year but is not
required to be taken into account under the
rules of paragraph (d)(1) of this section
because it is adopted after the valuation
date for the plan year, the plan amendment
must nonetheless be taken into account in
determining a plan’s funding target and
target normal cost for the plan year if the
plan amendment--
(A) Increases the liabilities of the plan
by reason of increases in current benefits,
establishment of new benefits, changing
the rate of benefit accrual, or changing the
rate at which benefits become nonforfeit-
able;
(B) Would not be permitted under sec-
tion 436, as described in paragraph (d)(2)
(ii) of this section; and
(C) Disproportionately increases target
normal cost, as described in paragraph (d)
(2)(iii) of this section.
(ii) Plan amendment that would not
be permitted under section 436. A plan
amendment is described in this paragraph
(d)(2)(ii) if the plan amendment would not
be permitted to take effect under the rules
of section 436(c) as applied under this
paragraph (d)(2)(ii). The rules of section
436(c) are applied under this paragraph
(d)(2)(ii) by--
(A) Treating the increase in the target
normal cost for the plan year attributable
to the amendment (and all other amend-
ments that must be taken into account
solely because of the application of the
rules in this paragraph (d)(2)) as if the
increase were an increase in the funding
target for the plan year; and
(B) Taking into account all unpredict-
able contingent event benefits permitted
to be paid for unpredictable contingent
events that occurred during the current
plan year and all plan amendments that
took effect in the current plan year
(including all amendments to which this
paragraph (d)(2) applies for the plan year).
(iii) Plan amendment resulting in dis-
proportionate increase in target normal
cost. A plan amendment is described in
this paragraph (d)(2)(iii) if the percentage
increase in target normal cost as the result
of the amendment is more than twice the
percentage increase in the funding target
as a result of the amendment (taking into
account only the benefits of participants
currently employed in the service of the
employer).
* * * * *
(f) * * *
(1) * * *
(ii) Changes in actuarial assumptions
and funding method. Actuarial assump-
tions established for a plan year cannot
subsequently be changed for that plan year
unless the Secretary of the Treasury or the
Secretary’s delegate (Secretary) either
approves a request for a change in actuar-
ial assumptions that was submitted before
the actuarial assumptions were established
for the plan year or determines that the
assumptions that were used are unreason-
able. Similarly, a funding method estab-
lished for a plan year cannot subsequently
be changed for that plan year unless the
Secretary either approves a request for a
change in funding method that was sub-
mitted before the funding method was
established for the plan year or determines
that the use of that funding method for that
plan year is impermissible.
* * * * *
(4) * * *
(iii) * * *
(C) Optional application of gener-
ational mortality. In determining the
present value of a distribution under this
paragraph (f)(4)(iii), if the generational
mortality tables under § 1.430(h)(3)-1(b)
or § 1.430(h)(3)-2 are used for a plan,
then an equal-weighted blend of the annu-
itant mortality rates under the § 1.430(h)
(3)-1(b) generational mortality tables for
males and females may be used in lieu of
the applicable mortality table under sec-
tion 417(e)(3) that would apply to a distri-
bution with an annuity starting date occur-
ring on the valuation date.
* * * * *
(5) * * *
(i) In general. In the case of a statutory
hybrid plan described in § 1.411(a)(13)-
1(d)(5), if the amount of a future distri-
bution is based on an interest adjustment
applied to the current accumulated bene-
fit, then the amount of that distribution is
determined by projecting the future inter-
est credits or equivalent amount under the
plan’s interest crediting rules using actu-
arial assumptions that satisfy the require-
ments of paragraph (f)(3) of this section.
Thus, if a plan provides for a single sum
distribution equal to the balance of a par-
ticipant’s hypothetical account under a
cash balance plan, then the amount of that
future distribution is equal to the projected
account balance at the expected date
of payment determined using actuarial
assumptions that satisfy the requirements
of paragraph (f)(3) of this section.
(ii) * * *
(A) General rule. In the case of a stat-
utory hybrid plan with a lump sum-based
benefit formula as described in § 1.411(a)
(13)-1(d)(3), if the amount of an annuity
distribution is based on either the balance
of the hypothetical account maintained for
a participant or the accumulated percent-
age of a participant’s final average com-
pensation, then the amount of that annuity
distribution is calculated by converting
the projected account balance (or accu-
mulated percentage of final average com-

Bulletin No. 2026–38 343 September 14, 2026
pensation), in accordance with paragraph
(f)(5)(i) of this section, to an annuity by
applying the plan’s annuity conversion
provisions using the rules of this para-
graph (f)(5)(ii).
* * * * *
(C) Optional application of genera-
tional mortality. The option under para-
graph (f)(4)(iii)(C) of this section to sub-
stitute the generational mortality table
may be used for purposes of determining
the amount of an annuity distribution
under paragraph (f)(5)(ii)(B) of this sec-
tion.
* * * * *
(g) Applicability date. This section
applies to plan years beginning on or after
[DATE SIX MONTHS AFTER DATE OF
PUBLICATION OF FINAL RULE]. For
earlier plan years, taxpayers may apply
either the rules of this section or the rules
described in 26 C.F.R. § 1.430(d)-1 (as it
appeared in the April 1, [2026], edition of
26 CFR part 1).
Frank J. Bisignano,
Chief Executive Officer.
(Filed by the Office of the Federal Register August
19, 2026, 8:45 a.m., and published in the issue of the
Federal Register for August 20, 2026, 91 FR 53803)
Notice of Proposed
Rulemaking
Application of Section
250(b)(3)(A)(i)(VII) to Sales
or Other Dispositions of
Property
REG-117130-25
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemak-
ing.
SUMMARY: This document contains
proposed regulations under section 250
of the Internal Revenue Code (Code) that
provide guidance on certain income of a
domestic corporation that is excluded in
the determination of deduction eligible
income. This category of income consists
of income and gain from the sale or other
disposition of intangible property and any
other property of a type that is subject to
depreciation, amortization, or depletion.
The proposed regulations would affect
domestic corporations with foreign-de-
rived deduction eligible income.
DATES: Written or electronic comments
must be received by October 5, 2026.
ADDRESSES: Commenters are strongly
encouraged to submit comments electron-
ically via the Federal eRulemaking Portal
at https://www.regulations.gov (indicate
IRS and REG-117130-25) by following
the online instructions for submitting
comments. Once submitted to the Federal
eRulemaking Portal, comments cannot be
edited or withdrawn. The Department of
the Treasury (Treasury Department) and
the IRS will publish for public availability
any comment submitted electronically or
on paper to its public docket. Send paper
submissions to CC:PA:01:PR (REG-
117130-25), Room 5503, Internal Reve-
nue Service, PO Box 7604, Ben Franklin
Station, Washington, D.C., 20044.
FOR FURTHER INFORMATION
CONTACT: Concerning the proposed
regulations, contact Stefan A. Pruessmann
or Michelle L. Ng at (202) 317-6939 (not
a toll-free number); concerning submis-
sions of comments and requests for a pub-
lic hearing, contact the Publications and
Regulations Section by email at publi-
chearings@irs.gov (preferred) or by tele-
phone at (202) 317-6901 (not a toll-free
number).
SUPPLEMENTARY INFORMATION:
Authority
This document contains proposed addi-
tions and amendments to 26 CFR part 1
(proposed regulations) under section 250
of the Code. The provisions of the pro-
posed regulations are issued pursuant to
the express delegation of authority under
section 250(b)(3)(A)(i)(VII) and (c). The
proposed regulations are also issued pur-
suant to the express delegation of author-
ity under section 7805(a).
Background
I. Overview of Foreign-Derived
Deduction Eligible Income
For taxable years beginning after
December 31, 2025, section 250(a)(1)
allows a domestic corporation to deduct
33.34 percent of the corporation’s for-
eign-derived deduction eligible income
(FDDEI). FDDEI is the deduction eligible
income (DEI) of any domestic corpora-
tion derived in connection with (i) prop-
erty sold to any person that is not a United
States person and is for a foreign use, or
(ii) services provided to any person, or
with respect to property, not located within
the United States. Section 250(b)(1).
Section 250(b)(3)(A) defines DEI as the
excess (if any) of a domestic corporation’s
gross income determined without regard
to certain categories of gross income over
the expenses and deductions (including
taxes), other than interest expense and
research or experimental expenditures,
properly allocable to such gross income.
II. Changes to Foreign-Derived
Deduction Eligible Income under the
One, Big, Beautiful Bill Act
Section 70322(a)(1) of Public Law 119-
21, 139 Stat. 72 (July 4, 2025), commonly
known as the One, Big, Beautiful Bill Act
(OBBBA), amended section 250(b)(3)(A)
(i) to add a new category of income that is
excluded from the determination of DEI.
See section 250(b)(3)(A)(i)(VII). Specif-
ically, for purposes of determining DEI
and except as otherwise provided by the
Secretary, section 250(b)(3)(A)(i)(VII)
(aa) and (bb) excludes from gross income
any income and gain from the sale or other
disposition (including pursuant to the
deemed sale or other deemed disposition
or a transaction subject to section 367(d))
of intangible property (as defined in sec-
tion 367(d)(4)), and any other property
of a type that is subject to depreciation,
amortization, or depletion by the seller,
respectively.
Additionally, section 70322(a)(2) of
the OBBBA amended section 250(b)(5)
(E) (defining the terms “sold,” “sells,”
and “sale”, collectively, “sale”) to provide
that section 250(b)(5)(E) does not apply
for purposes of the new category of gross

September 14, 2026 344 Bulletin No. 2026–38
income excluded from the determination
of DEI in section 250(b)(3)(A)(i)(VII).
1

For purposes of section 250(b), except
for paragraph (3)(A)(i)(VII) as amended
by the OBBBA, the terms “sold,” “sells,”
and “sale” included any lease, license,
exchange, or other disposition. Section
250(b)(2)(E). Therefore, the general defi-
nition of sale under section 250 (which
includes leases, licenses, exchanges, or
other dispositions) does not apply to sales
described in section 250(b)(3)(A)(i)(VII).
Section 70322(a)(3) of the OBBBA
provides that the amendments to exclude
income and gain from certain property
sales, and the modification to the gen-
eral definition of sale, apply to sales or
other dispositions (including pursuant
to deemed sales or other deemed dispo-
sitions or transactions subject to section
367(d)) occurring after June 16, 2025.
Section 70321(a) amended section
250(a)(1) by reducing the percentage of
FDDEI permitted to be deducted under
section 250 from 37.5 percent to 33.34
percent. Section 70322(b)(1) of the
OBBBA amended section 250(b)(3)(A)
(ii), which provides rules regarding the
deductions properly allocable to DEI.
Section 70323(b) of the OBBBA removed
the deemed intangible income (DII) and
deemed tangible income return (DTIR)
components from the computation of for-
eign-derived intangible income (FDII),
replaced “foreign-derived intangible
income” with “foreign-derived deduction
eligible income,” and made conforming
amendments to reflect the revised terms
and redesignated provisions, effective for
taxable years beginning after December
31, 2025.
III. Notice 2025-78
On December 4, 2025, the Treasury
Department and the IRS released Notice
2025-78, 2025-52 I.R.B. 874, describing
rules expected to be included in forthcom-
ing proposed regulations addressing the
scope of certain property sales or dispo-
sitions that are excluded from the deter-
mination of DEI under section 250(b)(3)
(A)(i)(VII), which, when finalized, would
apply to sales or other dispositions occur-
ring after June 16, 2025. However, Notice
2025-78 permitted taxpayers to rely on the
rules described therein for sales or other
dispositions occurring after June 16, 2025,
and before these proposed regulations are
published in the Federal Register, pro-
vided taxpayers apply the rules in their
entirety and in a consistent manner for all
applicable taxable years.
Explanation of Provisions
I. Overview
Consistent with Notice 2025-78, the
proposed regulations would address the
meaning and scope of section 250(b)(3)
(A)(i)(VII), which, as noted previously,
excludes from DEI income and gain from
the sale or other disposition of (1) intan-
gible property and (2) other property of a
type subject to depreciation, amortization,
or depletion by the seller. The proposed
regulations would also modify certain
regulations under section 250 to reflect
other amendments under the OBBBA and
to clarify that FDDEI remains a subset of
DEI.
The Treasury Department and the IRS
intend to address other changes made by
the OBBBA, including with respect to the
deductions properly allocable to DEI and
the removal of the DTIR and DII from the
FDII calculation, in separate guidance.
II. Excluded Property Sales Income
A. In General
Under proposed §1.250(b)-1(c)(15)
(vii), gross DEI would be determined
without regard to a new category of
gross income, “excluded property sales
income.” Proposed §1.250(b)-1(h) would
provide rules to determine whether
income and gain from the sale or dispo-
sition of certain property to any person is
treated as excluded property sales income.
Proposed §1.250(b)-1(h)(1) would define
“excluded property sales income” to mean
any income and gain derived from the sale
or other disposition of two categories of
property: intangible property and “other
excluded property.”
B. Intangible Property
Section 250(b)(3)(A)(i)(VII)(aa)
excludes sales or dispositions of intangi-
ble property, as defined in section 367(d)
(4), from DEI (and, thus, from FDDEI).
Existing regulations under section 250
define intangible property by reference
to section 367(d)(4) and specify that, for
purposes of section 250, intangible prop-
erty does not include a copyrighted arti-
cle as defined in §1.861-18(c)(3). See
§1.250(b)-3(b)(11). Thus, for purposes of
section 250, a copyrighted article includes
a copy of digital content from which the
work can be perceived, reproduced, or
otherwise communicated, either directly
or with the aid of a machine or device. See
§1.861-18(c)(3).
Section 3.01(3) of Notice 2025-78 used
the same definition of intangible property
as the existing section 250 regulations,
including that this term does not include
a copyrighted article as described in
§1.861-18(c)(3). Proposed §1.250(b)-1(h)
(1)(i) would provide the same defini-
tion of intangible property by reference
to §1.250(b)-3(b)(11). See proposed
§1.250(b)-1(h)(1)(i).
Comments in response to Notice
2025-78 requested further clarity on the
treatment of software transactions in the
context of intangible property and other
excluded property. These comments are
addressed below in part II.E of this Expla-
nation of Provisions section.
C. Other Excluded Property
Consistent with section 3.01(4) of
Notice 2025-78, the proposed regulations
would generally define property of a type
that is subject to depreciation, amortiza-
tion, or depletion (other excluded prop-
erty) as property that, in the hands of the
seller, is or has been of a character sub-
ject to the allowance for depreciation, or
is or has been subject to an allowance for
amortization or depletion. See proposed
§1.250(b)-1(h)(2)(ii). Therefore, other
1
Section 250(b)(5)(E) was redesignated section 250(b)(2)(E) by section 70323(b)(2)(B)(ii) of the OBBBA for taxable years beginning after December 31, 2025. Unless otherwise indicated,
references to section 250 in this preamble are with respect to section 250, as amended by the OBBBA.

Bulletin No. 2026–38 345 September 14, 2026
excluded property would not include, for
example, property that has always been
held as inventory by the seller because
such property would not be “of a charac-
ter” subject to the allowance for depreci-
ation.
For property subject to depreciation
under section 167, the proposed regula-
tions would adopt the phrase “property
of a character subject to the allowance for
depreciation under section 167” to inter-
pret the phrase “property of a type that
is subject to depreciation” that appears
in section 250(b)(3)(A)(i)(VII)(bb). This
phrasing is adopted because it is a term of
art commonly used to describe property
depreciated under section 167, including
by Congress in other Code provisions that
reference section 167, such as sections
174A(c)(1) (Domestic research or exper-
imental expenditures), 197(f)(7) (Amorti-
zation of goodwill and certain other intan-
gibles), 1221(a)(2) (Capital asset defined),
and 1231(b)(1) (Property used in the trade
or business and involuntary conversions).
Consistent with section 3.01(6) of
Notice 2025-78, the proposed regula-
tions would generally provide that other
excluded property retains its character
in the hands of certain related parties if
acquired pursuant to a basis-carryover
transaction with a principal purpose
of avoiding the application of section
250(b)(3)(A)(i)(VII)(bb). See proposed
§1.250(b)-1(h)(3).
A comment in response to Notice 2025-
78 requested a “remanufacturing” excep-
tion, such that other excluded property
would not include previously depreciated
property that is materially transformed or
remanufactured into property held for sale
as inventory. The commenter noted that
companies often lease or use high-value
assets in their trade or business and later
repurpose, remanufacture, or refurbish
such property for sale to unrelated for-
eign customers. The commenter asserted
that including gain from property that
reflects new investment, value creation,
and foreign-market expansion as excluded
property sales income is inconsistent with
the treatment of inventory or newly man-
ufactured property, the income and gain
from which is not subject to the exclusion
in section 250(b)(3)(A)(i)(VII)(bb). The
commenter also recommended a depre-
ciation recapture limitation for taxpayers
that do not remanufacture property that
would limit the portion of the gain from
other excluded property to the amount
that reflects previously claimed depreci-
ation, with any gain above that amount
remaining eligible for DEI and, there-
fore, FDDEI. Recognizing concerns with
related party transactions that obscure
prior use or artificially qualify gain for
FDDEI, the commenter supported the
continued application of the related-party
anti-abuse rule under section 3.01(6) of
Notice 2025-78, and suggested the depre-
ciation recapture limitation could be inap-
plicable if the asset was acquired from a
related party with a principal purpose of
avoiding exclusion.
The proposed regulations would not
adopt the requested remanufacturing
exception or the depreciation recapture
limitation. The Treasury Department and
the IRS are of the view that the phrase in
section 250(b)(3)(A)(i)(VII)(bb), “other
property of a type that is subject to depre-
ciation, amortization, or depletion by the
seller,” would include, for example, prop-
erty that has been subject to any deprecia-
tion in the hands of the seller. Thus, prop-
erty previously depreciated in a trade or
business and repurposed, remanufactured,
or refurbished into inventory would retain
its characterization as property subject to
depreciation. Furthermore, the requested
depreciation recapture limitation is con-
trary to section 250(b)(3)(A)(i)(VII),
which excludes all income and gain from
the sale or other disposition of referenced
property and does not suggest a limitation
to depreciation recapture. As a result, the
proposed regulations do not include the
requested exception or limitation.
D. Sales or Other Dispositions
As explained in the Background section
of this preamble, the general definition of
“sale” for section 250 purposes does not
apply for purposes of section 250(b)(3)
(A)(i)(VII). Instead, and consistent with
section 3.01(2) of Notice 2025-78, the
proposed regulations would determine a
sale or other disposition for this purpose
under general Federal income tax princi-
ples and include deemed sales, transac-
tions subject to section 367(d), and other
deemed dispositions. Accordingly, any
transaction or election that is treated as
a sale or other disposition of property for
Federal income tax purposes (rather than a
sale under the broader definition of “sale”
for section 250 purposes that includes
leases and licenses) would be considered
a sale or other disposition under proposed
§1.250(b)-1(h)(2)(iii).
In order to conform to the statutory
changes, the proposed regulations would
remove and reserve several examples in
§1.250(b)-4(d)(2)(iv)(B) that involve the
sale of intangible property.
E. Software Transactions
Section 1.861-18 provides rules for
classifying transactions involving soft-
ware and other digital content for pur-
poses of section 250 and certain other
provisions. §1.861-18(a)(1). As explained
above in part II.B of this Explanation of
Provisions section, and consistent with the
approach taken in the existing 250 regula-
tions, Notice 2025-78 provided that intan-
gible property does not include a copy-
righted article as defined in §1.861-18(c)
(3). Two commenters agreed with the
approach to exclude copyrighted articles
from intangible property in Notice 2025-
78 and requested additional examples and
clarifications in the software context.
Commenters requested modifying the
facts in Example 1 of Notice 2025-78,
which illustrates a software transaction
that would be treated as a sale of intangi-
ble property, to provide additional details
on the form of consideration and the trans-
feree’s use of the property. However, the
Treasury Department and the IRS are of
the view that the sale versus license deter-
mination does not depend on the form
of consideration or the transferee’s use
of the intangible property. See Rev. Rul.
57-40, 1957-1 C.B. 266 (transfer of pat-
ent with all substantial rights considered
a sale regardless of whether consideration
is for productivity, use or disposition of
the property transferred); see also E.I. du
Pont de Nemours & Co. v. United States,
432 F.2d 1052 (3d Cir. 1970). Therefore,
the proposed regulations would not mod-
ify the facts of Example 1.
One commenter requested an addi-
tional example illustrating that the sale of
a copyrighted article by a domestic corpo-
ration, whether through an electronic or
physical medium, should not be consid-

September 14, 2026 346 Bulletin No. 2026–38
ered a sale of intangible property or other
excluded property, even if the domestic
corporation uses the software in its own
business. The commenter also requested
an example illustrating that a “lease” of a
copyrighted article, where the term of the
arrangement to the customer is of a lim-
ited duration, would not be excluded from
DEI because there has been no “sale” of
property. To provide the additional clar-
ity requested in the software context, the
proposed regulations would include the
two requested examples. See proposed
§1.250(b)-1(h)(4)(ii) (Example 2). The
analysis in the first requested example is
also illustrated by Example 4 (sale of air-
planes) in proposed §1.250(b)-1(h)(4)(iv).
A comment also requested an addi-
tional example illustrating that income or
gain from a transfer of a copy of a com-
puter program with a limited duration
license is not excluded from DEI. Because
the comment relates to the characteriza-
tion of digital content transactions under
§1.861-18, it is outside the scope of the
proposed regulations. Accordingly, the
proposed regulations would not include
the requested example.
III. Clarification that FDDEI is a subset
of DEI
As a result of the OBBBA amend-
ments to remove the DTIR and DII com-
ponents from the calculation and replace
“foreign-derived intangible income”
with “foreign-derived deduction eligi-
ble income,” the foreign-derived ratio in
§1.250(b)-1(c)(13) is no longer needed
to compute the deduction under section
250(a)(1). The OBBBA amendments,
however, did not modify the definition of
FDDEI, including the treatment of FDDEI
as a subset of DEI. See section 250(b)(1)
(“The term ‘foreign-derived deduction
eligible income’ means...any deduction
eligible income which is derived in con-
nection with” certain property and ser-
vices). Accordingly, the proposed regula-
tions would clarify that FDDEI continues
to be limited by the amount of DEI. See
proposed §1.250(b)-1(c)(12).
IV. Applicability Dates and Reliance
The Treasury Department and the IRS
expect to finalize these proposed regula-
tions by January 4, 2027. Pursuant to the
authority conferred by section 7805(b)
(2), the proposed regulations are gener-
ally proposed to apply to sales or other
dispositions (as defined in proposed
§1.250(b)-1(h)(2)(iii)) occurring after
June 16, 2025. See proposed §1.250-1(b).
However, the proposed amendment to
§1.250(b)-1(c)(12) (clarifying FDDEI is
a subset of DEI) would apply to taxable
years beginning after December 31, 2025.
Taxpayers may rely on the proposed reg-
ulations for sales or other dispositions (as
defined in proposed 1.250(b)-1(h)(2)(iii))
before the date final regulations are pub-
lished in the Federal Register, provided
the taxpayer and its related parties (within
the meaning of §1.250(b)-1(c)(19)) follow
the proposed regulations in their entirety
and in a consistent manner.
Special Analyses
I. Regulatory Planning and Review—
Economic Analysis
Executive Orders 12866 and 13563
direct agencies to assess costs and ben-
efits of available regulatory alternatives
and, if regulation is necessary, to select
regulatory approaches that maximize net
benefits (including potential economic,
environmental, public health and safety
effects, distributive impacts, and equity).
Executive Order 13563 emphasizes the
importance of quantifying both costs and
benefits, reducing costs, harmonizing
rules, and promoting flexibility.
The proposed regulations have been
designated by the Office of Management
and Budget’s (OMB’s) Office of Infor-
mation and Regulatory Affairs (OIRA) as
subject to review under Executive Order
12866 pursuant to the Memorandum of
Agreement (MOA, July 4, 2025) between
the Treasury Department and the Office of
Management and Budget regarding review
of tax regulations. OIRA has determined
that the proposed rulemaking is significant
and subject to review under section 3(f) of
Executive Order 12866 and section 1(c) of
the Memorandum of Agreement. Accord-
ingly, the proposed regulations have been
reviewed by OMB. This rule is expected
to be an Executive Order 14192 regula-
tory action.
A. Background
The Tax Cuts and Jobs Act of 2017
(TCJA), Public Law 115-97, fundamen-
tally revised the U.S. international tax
system, including through the enactment
of the global intangible low-taxed income
(GILTI) regime under section 951A and
the FDII deduction under section 250.
Congress enacted these provisions in part
to reduce incentives for U.S. multinational
enterprises to locate or move intangible
income abroad, including in low- or zero-
tax foreign jurisdictions, and to neutralize
tax considerations in choosing whether to
serve foreign markets through U.S.-based
operations or through CFCs.
2
Section 250
allows a domestic corporation a deduc-
tion equal to a percentage of its FDDEI,
which generally consists of DEI derived
from property sold to foreign persons for
foreign use, and services provided to per-
sons, or with respect to property, located
outside the United States. The section 250
deduction lowers the effective corporate
tax rate on qualifying income.
3
As enacted in 2017, section 250(b)(3)
(A)(i) excluded six categories of income
from DEI, including Subpart F inclu-
sions, GILTI, financial services income,
dividends from controlled foreign corpo-
rations, domestic oil and gas extraction
income, and foreign branch income. Until
the 2025 enactment of section 250(b)(3)
(A)(i)(VII), section 250 did not gener-
ally exclude income or gain derived from
2
See Senate Committee on the Budget, 115th Cong., Reconciliation Recommendations Pursuant to H. Con. Res. 71 (available at https://www.govinfo.gov/content/pkg/CPRT-115SPRT27718/
pdf/CPRT-115SPRT27718.pdf). The FDII provision "Reasons for change" state: “[O]ffering similar...rates for intangible income derived from serving foreign markets, whether through
U.S.-based operations or through CFCs, reduces or eliminates the tax incentive to locate or move intangible income abroad, thereby limiting one margin where the Code distorts business
investment decisions.”
3
Under the original TCJA version of section 250, the 37.5 percent FDII deduction rate reduced the effective U.S. corporate tax rate on FDII from 21 percent to 13.125 percent. Under current
law, the 33.34 percent FDDEI deduction rate reduces the effective U.S. corporate tax rate on FDDEI from 21 percent to 14 percent.

Bulletin No. 2026–38 347 September 14, 2026
sales or other dispositions of intangible
property or depreciable, amortizable, or
depletable business property from DEI.
As a result, taxpayers could claim FDII
benefits with respect to certain disposi-
tions of such property. This treatment
could undermine the policy objectives
of the TCJA’s changes to the U.S. inter-
national tax system, which were princi-
pally directed toward curbing erosion of
the U.S. tax base through the offshoring
of property that generates ongoing for-
eign-market intangible income.
Section 70322(a)(1) of the OBBBA
amended section 250(b)(3)(A)(i) to add
a seventh category of income excluded
from DEI. Specifically, section 250(b)(3)
(A)(i)(VII) excludes from DEI, except
as otherwise provided by the Secretary,
income and gain from the sale or other
disposition of: (i) intangible property
within the meaning of section 367(d)(4);
4

and (ii) other property of a type that is
subject to depreciation, amortization, or
depletion by the seller (excluded property
sales income). The exclusion addresses
a narrow category of transactions where
taxpayers could obtain a tax benefit for
offshoring their intangible property and
business operations.
Section 70322(a)(2) of the OBBBA
makes a conforming change to the section
250 definition of “sale.” This change pre-
vents the broad section 250 definition of
“sale,” which generally includes leases,
licenses, exchanges, and other disposi-
tions, from applying to the new income
exclusion in section 250(b)(3)(A)(i)(VII).
As a result, a sale or other disposition for
purposes of the income exclusion in sec-
tion 250(b)(3)(A)(i)(VII) does not include
leases and licenses.
Section 70322(a)(3) of the OBBBA
provides that these statutory amendments
apply to sales or other dispositions occur-
ring after June 16, 2025. In addition to the
Secretary’s express regulatory authority
to determine the scope of the exclusion in
section 250(b)(3)(A)(i)(VII), the statute
grants express regulatory authority to pre-
scribe regulations necessary or appropri-
ate to carry out the provisions of section
250.
On December 4, 2025, the Treasury
Department and the IRS issued Notice
2025-78 announcing the intent to issue
proposed regulations under section 250.
4

The notice provided preliminary guidance
addressing the scope of excluded property
sales income, and included several defini-
tions and examples illustrating the appli-
cation of the rules.
B. Need for Proposed Regulations
The proposed regulations provide
guidance to taxpayers in applying section
250(b)(3)(A)(i)(VII) to the determination
of the type and amount of income eligi-
ble for the section 250 deduction. The
Treasury Department and the IRS are of
the view that regulatory guidance would
provide administrable standards, reduce
uncertainty, improve consistency among
similarly situated taxpayers, and pre-
vent inappropriate claims of FDDEI with
respect to income from the disposition of
intangible property and business assets
that Congress excluded from DEI.
C. The Proposed Regulations
Consistent with Notice 2025-78,
the proposed regulations provide rules
to determine when income and gain
from the disposition of property would
be treated as excluded property sales
income, including any income and gain
derived from the sale or other dispo-
sition of (i) intangible property, or (ii)
property that in the hands of a seller: (a)
is or has been treated as property that is
of a character subject to the allowance
for depreciation under section 167, (b) is
or has been subject to an allowance for
amortization, or (c) is or has been sub-
ject to the allowance for depletion under
section 611. In particular, as discussed in
the Explanation of Provisions section of
this preamble, the proposed regulations
would (i) provide definitions consistent
with existing statutory and regulatory
provisions; (ii) pursuant to the author-
ity granted to the Secretary of the Trea-
sury in section 250(b)(3)(A)(i)(VII) and
section 250(c), clarify that income and
gain from the sale of copyrighted arti-
cles and property that has always been
held as inventory by the seller would
not be treated as excluded property
sales income, with the latter subject to
a related party anti-abuse rule; and (iii)
modify certain regulations under section
250 to reflect amendments under the
OBBBA and clarify that FDDEI remains
a subset of DEI.
D. Baseline
The Treasury Department and the IRS
have assessed the benefits and costs of the
proposed regulations relative to a no-ac-
tion baseline reflecting anticipated Fed-
eral income tax-related behavior in the
absence of these proposed regulations.
E. Economic Effects of the Proposed
Regulations
1. Affected taxpayers
The broadest measure of taxpayers
potentially affected by the proposed reg-
ulations includes all taxpayers that claim
an FDII deduction under section 250 on
Form 1120, “U.S. Corporation Income
Tax Return” (or any successor form). The
Treasury Department and the IRS have
determined that between 2018 and 2023,
the number of Form 1120 filers that had
claimed an FDII deduction has increased
from 4,000 to 6,900. The estimated
number of FDDEI claimants in 2026 is
expected to range from 7,000 to 7,500.
However, only a subset of those taxpay-
ers is expected to be affected by the statu-
tory change, and an even smaller subset is
expected to be materially affected by the
proposed regulations relative to the statu-
tory baseline.
4
Section 367(d) generally applies to certain outbound transfers of intangible property by a U.S. person to a foreign corporation in an otherwise nonrecognition transaction. Section 367(d)
treats the U.S. transferor as having transferred the intangible property in exchange for deemed payments contingent on the productivity, use, or disposition of the property, which are generally
included in income over the useful life of the transferred intangible property. Section 250(b)(3)(A)(i)(VII) expressly includes transactions subject to section 367(d), ensuring that income
arising from such outbound intangible property transfers is within the scope of the DEI exclusion.
5
See 2025-52 I.R.B. 874 at https://www.regulations.gov/document/IRS-2025-0268-0001.

September 14, 2026 348 Bulletin No. 2026–38
Table 1: Approximate number of taxpayers claiming an FDII deduction, by year
6
Tax yearTotal number of taxpayers claiming FDII deduction
20184,000
20194,900
20204,700
20215,500
20226,900
20236,900
The statutory amendment excludes cer-
tain categories of sales income from DEI,
potentially affecting a subset of all FDII
claimants, i.e., taxpayers that recognize
income or gain from the sale or other dis-
position of intangible property, or depre-
ciable, amortizable, or depletable property
used in a trade or business.
Available data do not allow the Trea-
sury Department and the IRS to identify
the exact transactions or product types that
contribute to each taxpayer’s FDII deduc-
tion. However, Form 8993 reports gross
FDDEI by three income categories: sales
of general property, sales of intangible
property,
7
and services. Table 2 uses these
data to present, by industry, the number
of taxpayers claiming an FDII deduction
in tax year 2021 and their aggregate gross
FDDEI by income category.
Gross FDDEI is narrowed further by
taking into account allocated and appor-
tioned deductions to get to net FDDEI,
the income base on which the section
250 deduction is computed. Accordingly,
gross FDDEI exceeds net FDDEI, a por-
tion of which becomes the final section
250 deduction amount. In tax year 2021,
taxpayers reported $912 billion of aggre-
gate gross FDDEI, as shown in Table 2,
compared to $112 billion of aggregate
section 250 deductions for FDII.
8

With these limitations in mind, the
gross FDDEI data nevertheless provide
useful information about the industries
in which affected transactions are more
likely to arise. Firms in certain indus-
tries are more likely to be affected by
the statute because they generate income
from intangible property or use produc-
tion assets that are depreciable, amortiz-
able, and depletable. Firms in the Infor-
mation industry (e.g., publishers and
software producers) are more likely to
engage in transactions involving intan-
gible property. In 2021, 9 percent of all
firms claiming a FDII deduction (about
500 by count) are characterized as such,
and they account for 55 percent of the
gross FDDEI derived from all sales of
intangible property. Similarly, firms
in the Manufacturing industry may be
more likely to use and sell assets that are
depreciable, amortizable and depletable.
9

In 2021, 31 percent of all firms claiming
a FDII deduction (about 1,710 by count)
are characterized as manufacturing firms,
and they account for 46 percent of the
gross FDDEI derived from all sales of
general property.
Table 2: Taxpayers claiming a FDII deduction in tax year 2021, by industry
10
Panel A: Taxpayer counts and gross FDDEI amounts
IndustryCount
Total gross FDDEI
($B)
Gross FDDEI by type ($B)
General
property
Intangible
property
Services
Commodities and Trade2,080$257$167$30$60
Manufacturing1,710$343$189$76$77
Services1,020$36$4$12$20
Information500$248$45$150$53
Finance and Holding Companies190$27$3$5$19
Total5,500$912$409$273$230
6
Taxpayer counts are rounded to the nearest hundred, and based on tax filings of Forms 1120, 8993, and 1118.
7
Sales of intangible property, as reported in Form 8993, includes income from leases and licenses, which income is not subject to the exclusion in section 250(b)(3)(A)(i)(VII).
8
See https://www.irs.gov/pub/irs-soi/21it02sec250ind.xlsx.
9
For example, a domestic corporation that uses machinery in its manufacturing business may claim depreciation deductions with respect to that machinery. Income or gain from the later sale
or other disposition of that machinery may be excluded from DEI under section 250(b)(3)(A)(i)(VII)(bb).
10
Taxpayer counts are rounded to the nearest ten and based on tax filings of Forms 8993 in tax year 2021. Industries are defined at the 2-digit NAICS-level and grouped as follows: Commod-
ities and Trade (11, 21, 22, 42, 44, 45, 46, 48, 49, 56); Manufacturing (23, 31, 32, 33); Services (54, 61, 62, 71, 72, 81); Information (51); and Finance and Holding Companies (52, 53, 55).
Total gross FDDEI amounts are aggregated using Form 8993, Part II, line 11.

Bulletin No. 2026–38 349 September 14, 2026
Panel B: Shares of total
IndustryCount
Total gross
FDDEI
Gross FDDEI by type
General
property
Intangible
property
Services
Commodities and Trade38%28%41%11%26%
Manufacturing31%38%46%28%34%
Services19%4%1%4%9%
Information9%27%11%55%23%
Finance and Holding Companies3%3%1%2%8%
The population materially affected by
the proposed regulations would be nar-
rower. The proposed regulations primarily
affect taxpayers whose transactions raise
interpretive or characterization issues
addressed in the regulations. The subset of
taxpayers materially affected by the pro-
posed regulations, relative to the statutory
baseline, likely includes taxpayers with
transactions involving copyrighted arti-
cles and taxpayers disposing of mixed-use
property.
While the Treasury Department and
the IRS do not have the data or models
required to precisely estimate the num-
ber of taxpayers affected by the proposed
regulations, they expect the proposed
regulations to primarily affect taxpayers
that currently claim FDII deductions on
income and gain derived from signifi-
cant asset disposition transactions. The
proposed regulations are not expected to
materially affect corporations that do not
claim FDII deductions; do not engage in
significant sales or other dispositions of
property of a type that is subject to depre-
ciation, amortization, or depletion (other
excluded property); and do not engage
in transactions involving the interpretive
issues addressed by the proposed regula-
tions.
2. Economic effects
The proposed regulations are expected
to provide clarity and certainty regarding
the treatment of income and gains from
sales of copyrighted articles (including
software), and inventory. Taken together,
the proposed regulations would reduce
inconsistent treatment among similarly
situated taxpayers, legal disputes arising
from ambiguous reading of the statute,
compliance costs associated with uncer-
tain tax positions, and incentives to struc-
ture transactions to exploit ambiguity.
a. Clarify meanings of relevant terms
The proposed regulations clarify two
sets of terms that determine the scope of
excluded property sales income under
section 250(b)(3)(A)(i)(VII). First, the
proposed regulations clarify that, for pur-
poses of this exclusion, a “sale or other
disposition” is determined under general
tax principles and does not include a trans-
action characterized as a lease or license.
Second, the proposed regulations define
other excluded property by reference to
existing depreciation, amortization, deple-
tion, and inventory concepts, rather than
creating a new section 250-specific prop-
erty classification regime.
i. Clarify the meaning of “sale”
The statute amends the definition of
“sale” in section 250 to provide that the
broad section 250 definition of sale, which
includes any lease, license, exchange or
other disposition, does not apply for pur-
poses of the income exclusion in section
250(b)(3)(A)(i)(VII). In other words, Con-
gress indicated that the income exclusion
in section 250(b)(3)(A)(i)(VII) should
apply only to transactions that are treated
as sales or other dispositions (including
deemed sales and dispositions), and not
to other categories of transactions, such as
those characterized as leases or licenses.
Consistent with Notice 2025-78, the
proposed regulations would further clarify
this distinction and provide that a sale or
other disposition for purposes of section
250(b)(3)(A)(i)(VII) is determined under
general Federal income tax principles and
includes deemed sales, deemed disposi-
tions, and transactions subject to section
367(d). A transaction characterized as a
lease or license under general tax princi-
ples would not be treated as a sale or other
disposition, and income from such trans-
actions would therefore not be excluded
from DEI under section 250(b)(3)(A)(i)
(VII), although the income would remain
subject to the other requirements and lim-
itations of section 250.
This clarification is expected to reduce
uncertainty for taxpayers that earn income
from software, technology, intellectual
property, equipment leasing, and other
arrangements that may involve both sale
and license or lease features. It provides
a clear distinction between disposition
income, which Congress excluded from
DEI, and income from lease or license
arrangements, which may remain in DEI
if it otherwise qualifies. This distinction is
particularly relevant for owners of intan-
gible property because taxpayers may
exploit intellectual property through sev-
eral different transaction forms, includ-
ing outright sales, transfers of copyright
rights, licenses, and transactions that
are treated as services or cloud transac-
tions under existing rules. Some of these
transaction forms may generate the type
of foreign-market income that Congress
intended to encourage through the section
250 deduction, while others may involve
dispositions that facilitate the offshoring
of intellectual property or business assets
and are therefore excluded from DEI
under section 250(b)(3)(A)(i)(VII).
The proposed approach allows tax-
payers to apply existing general Fed-
eral income tax principles to determine
whether a transaction is a sale or other

September 14, 2026 350 Bulletin No. 2026–38
disposition for purposes of section 250(b)
(3)(A)(i)(VII). An alternative framework
would be to create a separate section
250-specific characterization regime,
including rules identifying particular cate-
gories of transactions that would or would
not qualify as sales or other dispositions.
The Treasury Department and the IRS do
not view this as a sound alternative. Such a
regime would introduce special classifica-
tion rules for a narrow purpose, increasing
compliance burdens, administrative com-
plexity, and disputes over economically
similar transactions. It also would need to
be coordinated with OBBBA’s conform-
ing amendment to the section 250 defi-
nition of sale, which prevents the broad,
general section 250 definition of sale from
applying for purposes of section 250(b)(3)
(A)(i)(VII). By relying instead on general
tax principles, the proposed regulations
reduce the need for taxpayers to charac-
terize the same transaction differently for
section 250 than for other Federal income
tax purposes.
Accordingly, under the proposed reg-
ulations, excluded property sales income
does not include income or gain from
the lease or license of property. This
approach avoids collapsing the statu-
tory distinction between a disposition of
property and an ordinary lease or license
arrangement. For example, treating
license income as excluded sales income
could cause a taxpayer earning royalties
from a license of intangible property to
be treated the same as a taxpayer that
sells the underlying intangible property,
even though the legal and economic
consequences of those transactions may
differ materially. This could create distor-
tions among transaction forms and over-
extend the exclusion beyond income and
gain from sales or other dispositions of
specified property.
ii. Provide definitions consistent with
existing statutory and regulatory
provisions
The proposed regulations generally
define the key categories of other excluded
property by reference to existing statutory
and regulatory concepts. Other excluded
property would include property that is not
intangible property and that, in the hands
of the seller, is or has been treated as prop-
erty of a character subject to the allowance
for depreciation under section 167, is or
has been subject to an allowance for amor-
tization, or is or has been subject to the
allowance for depletion under section 611.
Therefore, property that has always been
held as inventory by the seller would not
be other excluded property because such
property has not been “of a character”
subject to the allowance for depreciation.
The proposed regulations also coordinate
this definition with the existing definitions
of intangible property and copyrighted
articles.
Using existing statutory and regulatory
concepts is expected to reduce administra-
tive burden. Taxpayers generally already
classify property for purposes of depreci-
ation, amortization, depletion, inventory
accounting, and gain characterization.
By relying on familiar concepts, the pro-
posed regulations reduce the need for
taxpayers to apply a new property clas-
sification system solely for section 250.
This approach also promotes consistent
treatment between section 250 and other
Federal income tax provisions that already
determine whether property is deprecia-
ble, amortizable, depletable, inventory, or
intangible property.
The direct definitional approach is
expected to be particularly helpful for tax-
payers with mixed categories of property,
including manufacturers, software compa-
nies, natural resource businesses, and tax-
payers that hold both business-use assets
and inventory. These taxpayers may sell
property that is depreciable in one context
but inventory in another. The proposed
regulations would provide a more targeted
rule by focusing on the character of the
property in the hands of the seller and by
distinguishing ordinary-course inventory
sales from dispositions of the seller’s own
depreciable, amortizable, or depletable
business assets.
The proposed definitions are also
expected to reduce disputes over border-
line property categories. Without regu-
latory clarification, taxpayers could take
inconsistent positions regarding whether
section 250(b)(3)(A)(i)(VII)(bb) applies
to fully depreciated property, amortizable
property, depletable property, software,
inventory, or property that changes use
before sale. The proposed regulations
would reduce these uncertainties by pro-
viding definitions tied to established Code
provisions and by adding targeted rules
for related-party transfers and reclassified
property.
b. Clarify intangible property does not
include copyrighted articles
The proposed regulations would clarify
that, for purposes of section 250(b)(3)(A)
(i)(VII)(aa), intangible property does not
include a copyrighted article. This rule
distinguishes between a disposition of
copyright rights, which may be excluded
from DEI as a sale or other disposition
of intangible property, and a sale of an
article embodying copyrighted content,
which is not excluded from DEI solely
because the article is protected by copy-
right. A copyrighted article may neverthe-
less be excluded from DEI if the separate
exclusion for property of a type subject to
depreciation, amortization, or depletion
applies.
Ideally, the Treasury Department and
the IRS would estimate the economic
effect of this clarification using tax
return data that directly identify FDDEI
attributable to sales of copyrighted arti-
cles. Available tax return data do not
separately identify those transactions.
The Treasury Department and the IRS
therefore considered industry informa-
tion as a proxy for identifying taxpayers
more likely to engage in affected trans-
actions, given that certain businesses
are more likely than others to sell copy-
righted articles. This proxy is necessarily
imperfect: taxpayers within an industry
may earn income from multiple activ-
ities, and only some of those activities
may involve sales of copyrighted arti-
cles. Nonetheless, industry information
can help assess the size of the relevant
taxpayer population.
Taxpayers in the Information industry
are expected to be among the taxpayers
most likely to be affected because they
are more likely than taxpayers in other
industries to sell software, digital media,
publications, or other products embody-
ing copyrighted content. As noted above,
in 2021 approximately 500 taxpayers
claiming an FDII deduction, or 9 per-
cent of the total, were in the Information
industry. Total gross FDDEI reported by
FDII claimants in the information indus-

Bulletin No. 2026–38 351 September 14, 2026
try totaled $248 billion, $150 billion of
which was FDDEI from sales of intangi-
ble property, which likely includes sales
of copyrighted software and other digital
content.
The principal economic effect of this
rule is expected to be increased certainty.
Absent clarification, taxpayers could
interpret the statutory reference to section
367(d)(4) intangible property to include
copyrighted articles merely because the
articles embody copyrighted content. That
interpretation could create uncertainty for
taxpayers that sell software copies, pub-
lications, or other copyrighted products
to foreign customers. The proposed regu-
lations would reduce that uncertainty by
applying the existing Federal income tax
distinction between copyright rights and
copyrighted articles.
The clarification is also expected to
reduce distortions across transaction
forms. Producers of software and digi-
tal-content products may earn revenue
through multiple formats, including sales
of copies, licenses, cloud transactions,
services, and transfers of copyright rights.
Treating sales of copyrighted articles as
excluded property sales income solely
because the articles embody copyright-
able content could disadvantage sales of
copyrighted articles relative to other trans-
action forms, including certain licenses,
cloud transactions, and services. That
result would not align with the statutory
exclusion, which is directed at disposi-
tions of intangible property rather than
ordinary-course sales of copyrighted arti-
cles. The proposed regulations reduce this
risk by preserving potential DEI treatment
for qualifying foreign sales of copyrighted
articles while continuing to exclude dis-
positions of the underlying copyright or
other section 367(d)(4) intangible prop-
erty.
Relative to the baseline, the proposed
rule is expected to reduce inconsistent
treatment among similarly situated tax-
payers, reduce disputes over the charac-
terization of software and digital-content
transactions, and reduce incentives to
structure transactions based on uncer-
tainty over whether a copyrighted arti-
cle is treated as intangible property. Any
affected amount of income would depend
on the volume of foreign sales of copy-
righted articles, the extent to which those
sales otherwise satisfy the FDDEI require-
ments, and the extent to which taxpayers
sell or otherwise dispose of copyright
rights rather than copyrighted articles.
c. Clarify other excluded property does
not include inventory
Section 250(b)(3)(A)(i)(VII)(bb), as
added by OBBBA, excludes from DEI,
except as otherwise provided by the Sec-
retary, income and gain from the sale or
other disposition of other excluded prop-
erty. The proposed regulations would clar-
ify that other excluded property means
property that is or has been of a character
subject to the allowance for depreciation,
or is or has been subject to an allowance
for amortization or depletion. Therefore,
other excluded property would not include
property that has always been held as
inventory by the seller and has not been
“of a character” subject to the allowance
for depreciation. This inventory carveout
is particularly relevant for manufacturers
and other producers that use depreciable
assets as means of production and sell
products that may themselves be depre-
ciable in the hands of the purchaser.
Without this clarification, taxpayers
could interpret section 250(b)(3)(A)(i)
(VII)(bb) to exclude income and gain
from sales of ordinary-course inventory
from DEI, merely because the property
sold is of a kind that could be depreciated,
amortized, or depleted by the seller. For
example, a manufacturer may sell aircraft,
machinery, equipment, vehicles, soft-
ware copies, or other business-use prod-
ucts to foreign customers. Although such
property may serve as means of produc-
tion and therefore be of a type subject to
depreciation, amortization, and depletion
in the hands of the seller, income from the
seller’s ordinary-course inventory sales is
the type of foreign-market sales income
that section 250 is generally designed to
identify as potentially eligible for FDDEI
treatment, provided the other statutory
and regulatory requirements are satisfied.
The Treasury Department and the IRS
expect this clarification to reduce uncer-
tainty for taxpayers engaged in manufac-
turing, distribution, and other businesses
that sell inventory or similar property for
foreign use. In particular, this clarification
avoids uncertainty in the application of
the statutory exclusion. If inventory were
treated as other excluded property solely
because the property is of a type that could
be depreciated, amortized, or depleted by
the seller, then the exclusion could apply
broadly to ordinary foreign-market sales
of manufactured products. Such a broad
exclusion could substantially narrow the
category of income that would otherwise
be considered as FDDEI, which would
dampen the intended incentive for domes-
tic corporations to serve foreign markets
from the United States. The asset-by-asset
approach adopted in the proposed regula-
tion instead distinguishes between a sell-
er’s disposition of its own business assets
and the seller’s ordinary-course sales of
inventory, achieving the goal of discour-
aging dispositions of production assets
that Congress determined should not give
rise to FDDEI, while preserving the treat-
ment of ordinary-course inventory sales
for foreign use.
The proposed regulations also include
a related-party anti-abuse rule intended
to prevent taxpayers from using the
inventory clarification to avoid excluded
property sales income treatment through
related-party transactions. The inventory
clarification is intended to preserve DEI
treatment for legitimate ordinary-course
sales of inventory to foreign custom-
ers, not to permit taxpayers to avoid the
statutory exclusion by moving deprecia-
ble, amortizable, or depletable property
through related parties or intermediary
entities before sale.
Under this rule, property generally
retains its other excluded property charac-
ter when it is transferred within a modified
affiliated group in a basis-carryover trans-
action, if the transfer has a principal pur-
pose of avoiding the exclusion for other
excluded property. Thus, a taxpayer could
not avoid the income exclusion set forth in
section 250(b)(3)(A)(i)(VII)(bb) merely
by transferring depreciable, amortizable,
or depletable property to a related party
that holds the property as inventory before
selling it to a foreign customer. This rule
serves as a backstop to the inventory clar-
ification, so that the clarification protects
ordinary-course inventory sales without
allowing taxpayers to convert excluded
property sales income into FDDEI through
related-party reclassification or similar
transactions. The related party anti-abuse

September 14, 2026 352 Bulletin No. 2026–38
rule is expected to reduce incentives for
taxpayers to transfer depreciable property
through nonrecognition or basis-carryover
transactions, reclassify other excluded
property through intermediary entities, or
otherwise structure related-party transac-
tions to convert excluded property sales
income into FDDEI.
Together, these rules are expected to
improve consistency between the eco-
nomic substance of a transaction and its
treatment for DEI purposes. They may
reduce tax planning activity associated
with asset characterization and relat-
ed-party transfers, reduce disputes over
whether inventory treatment should be
respected for DEI purposes, and reduce the
likelihood that similarly situated taxpay-
ers will take inconsistent positions. The
principal compliance effect is expected
to be the need for taxpayers engaging in
related-party transfers, basis-carryover
transactions, or inventory reclassification
transactions to evaluate whether the rules
apply and maintain records supporting
their treatment.
The economic effects of not treat-
ing ordinary course inventory sales as
excluded property sales income are
expected to be concentrated in industries
with significant foreign sales of tangible
products or software and digital products,
including manufacturing, transportation
equipment, industrial machinery, elec-
tronics, pharmaceuticals, and software. In
2021, 1,710 taxpayers from the Manufac-
turing industry (broadly defined) claimed
a FDII deduction, representing 31 percent
of all FDII deduction claimants. Total
gross FDDEI reported by FDII claimants
in the Manufacturing industry totaled
$343 billion, $189 billion of which was
FDDEI from sales of general property,
which likely includes sales of inventory or
productive assets.
d. Summary
Based on the available models and
data, the Treasury Department and the
IRS estimate that the economic costs and
benefits of the proposed regulations would
be small. The Treasury Department and
the IRS invite public comments and addi-
tional data on the economic effects that
would result from these proposed regula-
tions.
II. Paperwork Reduction Act
The Paperwork Reduction Act of 1995
(44 U.S.C. 3501-3520) (PRA) generally
requires that a Federal agency obtain the
approval of the Office of Management
and Budget before collecting information
from the public, whether such collection
of information is mandatory, voluntary, or
required to obtain or retain a benefit. An
agency may not conduct or sponsor, and a
person is not required to respond to, a col-
lection of information unless it displays
a valid control number assigned by the
Office of Management and Budget.
The collections of information in these
proposed regulations include recordkeep-
ing requirements that are necessary for
domestic corporations to properly exclude
certain income and gain from the sale or
disposition of property from DEI. These
collections will be used by IRS for tax
compliance purposes.
These proposed regulations contain
rules to determine whether income and
gain from the sale or disposition of certain
property is excluded from DEI. Taxpayers
should maintain records sufficient to sub-
stantiate compliance with the exclusion
rules. These recordkeeping requirements
are considered general tax records under
§1.6001-1(e). For PRA purposes, general
tax records are already approved by OMB
under 1545-0123 for business filers.
III. Regulatory Flexibility Act
When an agency issues a rulemaking
proposal, the Regulatory Flexibility Act
(5 U.S.C. chapter 6) (RFA) requires the
agency to prepare and make available for
public comment an initial regulatory flexi-
bility analysis that will describe the impact
of the proposed rule on small entities. See
5 U.S.C. 603(a). Section 605 of the RFA
provides an exception to this requirement
if the agency certifies that the proposed
rulemaking will not have a substantial
economic impact on a substantial number
of small entities. A small entity is defined
as a small business, small nonprofit orga-
nization, or small governmental jurisdic-
tion. See U.S.C. 601(3) through (6).
It is hereby certified that the proposed
regulations will not have a significant eco-
nomic impact on a substantial number of
small entities. These regulations affect
domestic corporations with foreign-de-
rived deduction eligible income. Although
data are not readily available, the Trea-
sury Department and the IRS have deter-
mined that the regulations may affect a
substantial number of small entities. The
Treasury Department and the IRS do not
expect that the proposed regulations will
have a significant economic impact on
affected small entities within the meaning
of sections 601(3) through (6) of the RFA.
The proposed regulations provide guid-
ance on certain excluded property sales
income from deduction eligible income
under section 250 but do not change the
economic impact of the existing regula-
tions or impose any new costs on small
entities. Notwithstanding this certifica-
tion, the Treasury Department and the IRS
welcome comments from the public about
the impact of these regulations on small
entities.
IV. Submission to the Small Business
Administration
Pursuant to section 7805(f) of the
Code, the proposed regulations have been
submitted to the Chief Counsel for Advo-
cacy of the Small Business Administra-
tion for comment on their impact on small
businesses.
V. Unfunded Mandates Reform Act
Section 202 of the Unfunded Man-
dates Reform Act of 1995 requires that
agencies assess anticipated costs and
benefits and take certain other actions
before issuing a final rule that includes
any Federal mandate that may result in
expenditures in any one year by a State,
local, or Tribal government, in the aggre-
gate, or by the private sector, of $100
million in 1995 dollars, updated annu-
ally for inflation. In 2026, that thresh-
old is approximately $214 million. The
proposed regulations do not include
any Federal mandate that may result in
expenditures by State, local, or Tribal
governments, or by the private sector in
excess of that threshold.
VI. Executive Order 13132: Federalism
Executive Order 13132 (Federalism)
prohibits an agency from publishing any

Bulletin No. 2026–38 353 September 14, 2026
rule that has federalism implications
if the rule either imposes substantial,
direct compliance costs on State and
local governments, and is not required
by statute, or preempts State law, unless
the agency meets the consultation and
funding requirements of section 6 of the
Executive Order. The proposed regula-
tions do not have federalism implica-
tions, do not impose substantial direct
compliance costs on State and local
governments, and do not preempt State
law within the meaning of the Executive
Order.
Comments and Requests for Public
Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any written or electronic
comments that are submitted timely to the
IRS as prescribed in this preamble under
the “ADDRESSES” heading. Comments
are requested on all aspects of the pro-
posed regulations.
All comments will be available at
http://www.regulations.gov or upon
request. Pursuant to the Administrative
Procedure Act at 5 U.S.C. 553(b)(4), a
plain language summary of the proposed
rule will also be available at http://www.
regulations.gov. A public hearing will be
scheduled if requested in writing by any
person that timely submits written com-
ments. Requests for a public hearing are
encouraged to be made electronically. If
a public hearing is scheduled, notice of
the date, time, and place for the public
hearing will be published in the Federal
Register.
Statement of Availability of IRS
Documents
For copies of recently issued Revenue
Procedures, Revenue Rulings, Notices,
and other guidance published in the Inter-
nal Revenue Bulletin, please visit the IRS
website at https://www.irs.gov.
Drafting Information
The principal authors of these reg-
ulations are Stefan A. Pruessmann and
Michelle L. Ng of the Office of Associate
Chief Counsel (International). However,
other personnel from the Treasury Depart-
ment and the IRS participated in their
development.
List of Subjects in 26 CFR Part 1
Income Taxes, Reporting and record-
keeping requirements.
Proposed Amendments to the
Regulations
Accordingly, the Treasury Department
and the IRS propose to amend 26 CFR
part 1 as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 is amended by adding an entry
in numerical order for §1.250(b)-1(h) to
read in part as follows:
Authority: 26 U.S.C. 7805 * * *
* * * * *
Section 1.250(b)-1(h) also issued under
26 U.S.C. 250(b)(3)(A)(i)(VII).
* * * * *
Par. 2. Section 1.250-0 is amended by
adding an entry for §1.250(b)-1(h) to read
as follows:
§1.250-0 Table of contents.
* * * * *
§1.250(b)-1 Computation of foreign-
derived intangible income (FDII).
* * * * *
(h) Excluded property sales income.
(1) Scope.
(2) Definitions.
(i) Excluded seller.
(ii) Other excluded property.
(iii) Sale or other disposition.
(3) Related party anti-abuse rule.
(i) In general.
(ii) Modified affiliated group.
(4) Examples.
* * * * *
Par. 3. Section 1.250-1 is amended by
adding three new sentences at the end of
paragraph (b) to read as follows:
§1.250-1 Introduction.
* * * * *
(b) * * * Sections 1.250(b)-1(c)(15)
(vii), 1.250(b)-1(h), and the last two sen-
tences in §1.250(b)-3(b)(16) apply to
sales or other dispositions (as defined in
§1.250(b)-1(h)(2)(iii)) occurring after
June 16, 2025. Section 1.250(b)-1(c)(12)
applies to taxable years beginning after
December 31, 2025. For rules that apply
to taxable years beginning on or before
December 31, 2025, see §1.250(b)-1(c)
(12) as contained in 26 CFR part 1 revised
as of April 1, 2026.
Par. 4. Section 1.250(b)-1 is amended
by:
1. Adding a sentence at the end of para-
graph (a);
2. Revising paragraph (c)(12);
3. Removing the second “and” from
paragraph (c)(15)(v);
4. Removing the period at the end of
paragraph (c)(15)(vi) and adding the lan-
guage “; and” in its place;
5. Adding new paragraph (c)(15)(vii);
and
6. Adding new paragraph (h).
The additions and revision read as fol-
lows:
§1.250(b)-1 Computation of foreign-
derived intangible income (FDII).
(a) * * * Paragraph (h) of this section
provides rules regarding excluded prop-
erty sales income.
* * * * *
(c) * * *
(12) The term foreign-derived deduc-
tion eligible income or FDDEI means,
with respect to a domestic corporation for
a taxable year, the excess (if any, and not
to exceed DEI) of the corporation’s gross
FDDEI for the year, over the deductions
properly allocable to gross FDDEI for the
year, as determined under paragraph (d)
(2) of this section.
* * * * *
(15) * * *
(vii) Excluded property sales income
(as defined in paragraph (h) of this sec-
tion).
* * * * *
(h) Excluded property sales income.—
(1) Scope. This paragraph (h) provides
rules for determining “excluded prop-
erty sales income,” which consists of
certain income and gain excluded from
DEI under section 250(b)(3)(A)(i)(VII)

September 14, 2026 354 Bulletin No. 2026–38
and paragraph (c)(15)(vii) of this section.
Except as provided in paragraph (h)(3) of
this section, the term excluded property
sales income means any income and gain
derived from the sale or other disposition
(as defined in paragraph (h)(2)(iii) of this
section) of the following—
(i) Intangible property (as defined in
§1.250(b)-3(b)(11)); or
(ii) Other excluded property (as defined
in paragraph (h)(2)(ii) of this section).
(2) Definitions. This paragraph (h)(2)
provides definitions that apply for pur-
poses of this paragraph (h).
(i) Excluded seller. The term excluded
seller means the domestic corporation
or partnership (whether domestic or for-
eign) that sells or otherwise disposes of
intangible property or other excluded
property.
(ii) Other excluded property. The term
other excluded property means property
that is not intangible property under para-
graph (h)(1)(i) of this section and that, in
the hands of the excluded seller—
(A) Is or has been property that is of
a character subject to the allowance for
depreciation under section 167;
(B) Is or has been subject to an allow-
ance for amortization that is not described
in paragraph (h)(2)(ii)(A) of this section;
or
(C) Is or has been subject to the allow-
ance for depletion under section 611.
(iii) Sale or other disposition. The term
sale or other disposition means a sale or
other disposition as determined under
general Federal income tax principles,
including deemed sales, other deemed
dispositions, and transactions subject to
section 367(d). A deemed sale or other
deemed disposition includes any transac-
tion or election that is treated as a sale or
other disposition of property for Federal
income tax purposes. A sale or other dis-
position does not include a transaction that
would be characterized under general tax
principles as a lease or license. See para-
graphs (h)(4)(i)(C) and (ii)(C) of this sec-
tion (Examples 1 and 2). For purposes of
§§1.250(b)-3 through 1.250(b)-6, see the
definition of “sale” under §1.250(b)-3(b)
(16).
(3) Related-party anti-abuse rule.
(i) In general. Property that was other
excluded property in the hands of a mem-
ber of the excluded seller’s modified affil-
iated group is treated as other excluded
property with respect to the excluded
seller, if the excluded seller acquires that
property—
(A) In a transaction (or series of trans-
actions) in which the basis of the prop-
erty is determined, in whole or in part, by
reference to the basis in the hands of the
member in whose hands the property was
other excluded property; and
(B) With a principal purpose of avoid-
ing the application of section 250(b)(3)
(A)(i)(VII)(bb).
(ii) Modified affiliated group. Solely
for purposes of this paragraph (h)(3), the
term modified affiliated group has the
meaning given in paragraph (c)(17) of
this section but without the substitution
of “more than 50 percent” for “at least
80 percent” each place it appears, and
by substituting “at least 80 percent” for
“more than 50 percent” for purposes of
determining control within the meaning
of section 954(d)(3).
(4) Examples. The following examples
illustrate the application of this paragraph
(h).
(i) Example 1: Sale of intangible proper-
ty--(A) Facts. DC, a domestic corporation, owns
the copyright to a computer program, Program
X. DC enters into an agreement with FP, an unre-
lated foreign person, under which DC grants FP
an exclusive irrevocable license for the remaining
term of the copyright, to copy and distribute an
unlimited number of copies of Program X, prepare
derivative works based upon Program X, make
public performances of Program X, and publicly
display Program X. FP will pay DC a royalty each
year equal to y percent of net revenue derived
from exploiting Program X during the year, for
the remaining term of the copyright. Under gen-
eral tax principles, DC is treated as having sold the
copyright to Program X, notwithstanding that the
agreement is labeled a license.
(B) Analysis. The copyright to Program X
is intangible property within the meaning of
§1.250(b)-3(b)(11). Because DC has sold intangible
property (the copyright) under general tax principles
(including under §1.861-18(f)(1)), DC’s income or
gain resulting from the sale is excluded property
sales income.
(C) Alternative facts - license. The facts are the
same as in paragraph (h)(4)(i)(A) of this section,
except the license from DC to FP is a nonexclu-
sive revocable license for the remaining term of the
copyright and, therefore, is treated as a license under
general tax principles (including §1.861-18(f)(1)).
DC’s income or gain resulting from the license is not
excluded property sales income.
(ii) Example 2: Sale of copyrighted article.
(A) Facts. DC, a domestic corporation, owns
the copyright to a computer program, Program X.
DC transfers copies of Program X to unrelated
foreign customers who receive the right to use the
copies in perpetuity. DC also uses different copies
of Program X in its own trade or business. DC has
never used the copies of Program X it transfers to
unrelated foreign customers in DC’s own trade or
business.
(B) Analysis. DC’s income or gain from the
transfer of copies of Program X, whether through an
electronic or physical medium, is from the sale of
copyrighted articles, as defined in §1.861-18(c)(3).
The copies of Program X are not intangible property
because intangible property does not include copy-
righted articles. See §1.250(b)-3(b)(11). The copies
of Program X sold to unrelated foreign customers are
not other excluded property because, in the hands of
DC, those copies of Program X are not property that
is of a character subject to the allowance for depre-
ciation under section 167 or amortization. The fact
that DC also uses copies of Program X in its business
does not affect this analysis, even if DC’s internal use
copies are other excluded property. Therefore, DC’s
income or gain from the sales of copies of Program X
to unrelated foreign customers is not excluded prop-
erty sales income.
(C) Alternative facts – lease of a copyrighted
article. The facts are the same as in paragraph (h)
(4)(ii)(A) of this section, except that the unrelated
foreign customers receive the right to use the copy of
Program X for a period of only two years. The trans-
fers of the copies of Program X to unrelated foreign
customers are properly classified as leases of copy-
righted articles under §1.861-18(f)(2). Therefore,
because there has been no sale or other disposition of
other excluded property, DC’s income or gain from
the lease of copies of Program X is not excluded
property sales income.
(iii) Example 3: Sale of fully depreciated prop-
erty--(A) Facts. DC, a domestic corporation, holds a
machine for use in its trade or business. The machine
has an adjusted depreciable basis of zero because it
has been fully depreciated under section 167. During
the taxable year, DC sells the machine to FP, an unre-
lated foreign person.
(B) Analysis. In the hands of DC, the machine
is treated as property that is of a character subject
to the allowance for depreciation under section 167.
Therefore, the machine constitutes other excluded
property, and DC’s income or gain from the sale
of the machine to FP is excluded property sales
income.
(C) Alternative facts – nonrecognition transac-
tion. The facts are the same as in paragraph (h)(4)
(iii)(A) of this section, except that DC acquired the
machine in a nonrecognition transaction for use in
DC’s trade or business and, at the time of the acquisi-
tion, the machine was fully depreciated by the previ-
ous owner. Notwithstanding the fact that the machine
was not depreciated in the hands of DC (because it
had been fully depreciated when acquired by DC),
the machine is property that is of a character subject
to the allowance for depreciation under section 167
in the hands of DC. Therefore, DC’s income or gain
from the sale of the machine to FP is excluded prop-
erty sales income.
(iv) Example 4: Sales of inventory and other
excluded property used in a trade or business--(A)
Facts. DC, a domestic corporation, owns 100 air-
planes. DC holds five of the airplanes for use in its

Bulletin No. 2026–38 355 September 14, 2026
trade or business and, accordingly, the planes are
property that is of a character subject to the allow-
ance for depreciation under section 167. DC holds
the remaining 95 airplanes in inventory. During the
taxable year, DC sells to FP, an unrelated foreign
person, two airplanes that DC uses in its trade or
business and 35 airplanes that DC holds in inven-
tory.
(B) Analysis. DC’s sales of the two airplanes
are sales of other excluded property because the
two airplanes are property that is of a character
subject to the allowance for depreciation under sec-
tion 167. Therefore, DC’s income or gain from the
sales of the two airplanes is excluded property sales
income. DC’s sales of the 35 airplanes to FP are not
sales or other dispositions of other excluded prop-
erty because the 35 airplanes are held as inventory
and are not property that is of a character subject
to the allowance for depreciation under section
167. Therefore, DC’s income or gain from the sales
of the 35 airplanes is not excluded property sales
income.
(v) Example 5: Sales involving members of a con-
solidated group.--(A) Facts. P is the common parent
of a consolidated group (as defined in §1.1502-1(h)).
P owns all of the only class of stock of subsidiar-
ies DC1 and DC2, which are members (as defined
in §1.1502-1(b)) of the P consolidated group. DC1
owns ten airplanes that are property that is of a char-
acter subject to the allowance for depreciation under
section 167. In Year 1, DC1 sells all ten airplanes to
DC2, recognizing $100x of gain, which is deferred.
DC2 holds these airplanes in inventory. In Year 2,
DC2 sells all ten airplanes to an unrelated foreign
person, recognizing $85x of gains.
(B) Analysis. The treatment of DC1’s and
DC2’s gains on their respective sales is subject to
redetermination under §1.1502-13(c) to the extent
necessary to achieve single entity treatment for the
group. If DC1 and DC2 were divisions of a single
corporation, the ten airplanes would be, or would
have been, property that is of a character subject to
the allowance for depreciation under section 167.
Therefore, to achieve single entity treatment, both
DC1’s $100x of gain and DC2’s $85x of gains are
treated in Year 2 as income or gain from the sales of
other excluded property and are excluded property
sales income.
(vi) Example 6: Related-party anti-abuse rule-
-(A) Facts. DC1 is a domestic corporation that owns
an 80 percent interest in the profits and capital of a
domestic partnership, PRS. Unrelated persons own
the remaining interests in PRS. PRS owns all of the
only class of stock of DC2, a domestic corporation.
DC1 owns 20 cars that are other excluded property in
the hands of DC1. With a principal purpose of avoid-
ing the application of section 250(b)(3)(A)(i)(VII)
(bb), DC1 transfers all 20 cars to PRS in an exchange
described in section 721(a), and PRS transfers all 20
cars to DC2 in an exchange described in section
351(a). Under section 723, PRS’s basis in the cars
transferred to it by DC1 is the same as DC1’s basis in
the cars at the time of the transfer. Under section 362,
DC2’s basis in the cars transferred to it by PRS is the
same as the basis of the cars in the hands of PRS.
DC2 holds the cars in inventory and recognizes gain
on the subsequent sales of all 20 cars to an unrelated
foreign person.
(B) Analysis. DC1, PRS, and DC2 are mem-
bers of a modified affiliated group for purposes
of paragraph (h)(3) of this section. Because DC2
acquired property that was other excluded prop-
erty in the hands of DC1, a member of DC2’s
modified affiliated group for purposes of para-
graph (h)(3) of this section, in a series of trans-
actions in which the basis of the property was
determined by reference to the basis in the hands
of the transferor and with a principal purpose
of avoiding the application of section 250(b)(3)
(A)(i)(VII)(bb), the 20 cars are treated as other
excluded property in the hands of DC2. There-
fore, DC2’s gain from the sales of the 20 cars are
excluded property sales income.
Par. 5. Section 1.250(b)-3 is amended
by adding two new sentences at the end of
paragraph (b)(16) to read as follows:
§1.250(b)-3 Foreign-derived deduction
eligible income (FDDEI) transactions.
* * * * *
(b) * * *
(16) * * * The definition of sale in this
paragraph (b)(16) does not apply for pur-
poses of §1.250(b)-1(c)(15)(vii) and (h).
See §1.250(b)-1(h)(2)(iii) for the defini-
tion of sale or other disposition for pur-
poses of determining excluded property
sales income.
* * * * *
Par. 6. Section 1.250(b)-4 is amended
by removing and reserving paragraphs (d)
(2)(iv)(B)(3) through (5), and (8), to read
as follows:
§1.250(b)-4 Foreign-derived deduction
eligible income (FDDEI) sales.
* * * * *
(d) * * *
(2) * * *
(iv) * * *
(B) * * *
(3) [Reserved]
(4) [Reserved]
(5) [Reserved]
* * * * *
(8) [Reserved]
* * * * *
Frank J. Bisignano,
Chief Executive Officer.
(Filed by the Office of the Federal Register August
19, 2026, 8:45 a.m., and published in the issue of
the Federal Register for August 20, 2026, 91 FR
53792)
Notice of Proposed
Rulemaking
Application of the
Personal Responsibility
and Work Opportunity
Reconciliation Act of 1996
to the Refunded Portion of
Certain Federal Refundable
Tax Credits
REG-119882-25
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemak-
ing and notice of public hearing.
SUMMARY: This document contains
proposed regulations that would pro-
vide that the refunded portion of certain
refundable Federal income tax credits
available to individuals is a “Federal pub-
lic benefit” under the Personal Responsi-
bility and Work Opportunity Reconcilia-
tion Act of 1996 (PRWORA). As a result,
aliens who are not “qualified aliens” under
PRWORA would be ineligible to receive
the refunded portion of these refundable
credits. These regulations would generally
affect taxpayers claiming the following
Federal income tax credits: the adoption
tax credit, the American opportunity tax
credit, the child tax credit, and the earned
income credit. As required by PRWORA,
this document also provides notice to
the public and notifies recipients of pro-
posed changes regarding eligibility for the
refunded portion of such Federal income
tax credits under PRWORA.
DATES: Written or electronic comments
must be received by October 5, 2026. A
public hearing on this proposed regulation
has been scheduled for October 14, 2026.
Requests to speak and outlines of topics to
be discussed at the public hearing must be
received by October 5, 2026. If no outlines
are received October 5, 2026, the public
hearing will be cancelled. Requests to
attend the public hearing must be received
by 5 p.m. ET on October 9, 2026.

September 14, 2026 356 Bulletin No. 2026–38
ADDRESSES: Commenters are strongly
encouraged to submit public comments
electronically. Submit electronic submis-
sions via the Federal eRulemaking Portal
at www.regulations.gov (indicate IRS and
REG-119882-25) by following the online
instructions for submitting comments.
Once submitted to the Federal eRulemak-
ing Portal, comments cannot be edited or
withdrawn. The Department of the Trea-
sury (Treasury Department) and the IRS
will publish for public availability any
comments submitted electronically, and
comments submitted on paper to the IRS’s
public docket. Send paper submissions to:
CC:PA:01:PR (REG-119882-25), Room
5503, Internal Revenue Service, P.O. Box
7604, Ben Franklin Station, Washington,
DC 20044.
FOR FURTHER INFORMATION
CONTACT: Concerning the proposed
regulations, Branch 4 of the Office of
Associate Chief Counsel (Income Tax &
Accounting), (202) 317-4718 (not a toll-
free number); concerning submissions
of comments or the public hearing, the
Publications and Regulations Section at
(202) 317-6901 (not toll-free numbers) or
by email to publichearings@irs.gov (pre-
ferred).
SUPPLEMENTARY INFORMATION:
Authority
This notice of proposed rulemaking
contains proposed amendments to the
Income Tax Regulations (26 CFR part
1) under sections 23, 24, 25A, and 32 of
the Internal Revenue Code (Code) under
the authority of section 7805(a) of the
Code, which authorizes the Secretary of
the Treasury or the Secretary’s delegate
(Secretary) to prescribe all needful rules
and regulations for the enforcement of
the Code, including all rules and regula-
tions as may be necessary by reason of
any alteration of law in relation to internal
revenue.
The proposed regulations are also
issued under the authority of section 404
of PRWORA, Public Law 104-193, 110
Stat. 2105, 2267 (Aug. 22, 1996) (8 U.S.C.
1614), which requires a Federal agency
administering a Federal public benefit to
post information and provide general noti-
fication to the public and to benefit recip-
ients of the changes regarding eligibility
for any such benefit pursuant to subtitle A
of Title IV of PRWORA.
Background
I. Personal Responsibility and Work
Opportunity Reconciliation Act
Section 401(a) of PRWORA (8 U.S.C.
1611(a)) provides that aliens who are not
qualified aliens (as that term is defined in
8 U.S.C. 1641) are not eligible for any
Federal public benefit (as defined in 8
U.S.C. 1611(c)), with certain narrow
exceptions.
1
Section 401(c)(1)(B) of PRWORA (8
U.S.C. 1611(c)(1)(B)) defines the term
“Federal public benefit,” in relevant part,
as “any retirement, welfare, health, dis-
ability, public or assisted housing, postsec-
ondary education, food assistance, unem-
ployment benefit, or any other similar
benefit for which payments or assistance
are provided to an individual, household,
or family eligibility unit by an agency of
the United States or by appropriated funds
of the United States.”
Section 431(b) of PRWORA (8 U.S.C.
1641(b)) defines the term “qualified
alien” as “an alien who, at the time the
alien applies for, receives, or attempts to
receive a Federal public benefit is: (1) an
alien who is lawfully admitted for per-
manent residence under the Immigration
and Nationality Act, (2) an alien who
is granted asylum under section 208 of
such Act, (3) a refugee who is admitted
to the United States under section 207 of
such Act, (4) an alien who is paroled into
the United States under section 212(d)
(5) of such Act for a period of at least
1 year, (5) an alien whose deportation
is being withheld under section 243(h)
of such Act (as in effect immediately
before the effective date of section 307
of division C of Public Law 104-208)
or section 241(b)(3) of such Act (as
amended by section 305(a) of division
C of Public Law 104-208), (6) an alien
who is granted conditional entry pursu-
ant to section 203(a)(7) of such Act as in
effect prior to April 1, 1980, (7) an alien
who is a Cuban and Haitian entrant (as
defined in section 501(e) of the Refugee
Education Assistance Act of 1980), or
(8) an individual who lawfully resides
in the United States in accordance with
a Compact of Free Association referred
to in section 1612(b)(2)(G) of [title 8].”
The term “qualified alien” also includes
certain aliens who have been battered or
subject to extreme cruelty in the United
States provided they meet certain require-
ments including a substantial connection
between such battery or cruelty and the
need for the benefits to be provided. See 8
U.S.C. 1641(c).
Section 404 of PRWORA (8 U.S.C.
1614) requires each Federal agency that
administers a program to which sec-
tion 1611 of title 8, United States Code,
applies, to post information and provide
general notification to the public and to
program recipients of the changes regard-
ing eligibility for such Federal public ben-
efits.
II. Executive Actions
Prior to 2018, the Treasury Depart-
ment and the IRS had not viewed tax
benefits, including refundable credits, as
constituting Federal public benefits under
PRWORA. In 2018, the Treasury Depart-
ment began to reconsider the potential
applicability of PRWORA’s eligibil-
ity restrictions to the refunded portions
of three individual refundable income
tax credits: (1) the earned income credit
under section 32 (EITC), (2) the child tax
credit under section 24 (CTC), and (3) the
American opportunity tax credit under
section 25A (AOTC). In connection with
that reconsideration, the General Coun-
sel’s office of the Treasury Department
requested an opinion from the Office of
Legal Counsel (OLC) at the Department
of Justice as to whether the refundable
portions of each of these three credits
“may reasonably be construed as a ‘Fed-
1
8 U.S.C. 1611(b) (listing exceptions). See also A.G. Order No. 6335-2025, 90 FR 32023 (July 11, 2025) (no benefits are exempt from PRWORA other than the provision of police, fire,
ambulance, transportation, sanitation, and other similar services).

Bulletin No. 2026–38 357 September 14, 2026
eral public benefit’ within the meaning of
PRWORA’s provision on aliens’ ineligi-
bility for such benefits.”
2
On December 9, 2020, OLC sent a
memorandum to the General Counsel of
the Treasury Department opining that the
refunded portion of the named tax credits
may reasonably be construed as a “Fed-
eral public benefit” for which nonquali-
fied aliens are generally ineligible under
PRWORA.
3
OLC reasoned that the EITC,
CTC, and AOTC provide direct payments
to individual taxpayers and households;
are materially similar to other kinds of
monetary payments that the Federal gov-
ernment makes to individuals outside of
the tax system; and each satisfies PRWO-
RA’s definition of a Federal public benefit
either as a welfare benefit, postsecondary
education benefit, or other similar benefit.
The 2020 OLC Opinion stated, however,
that “you have not asked us to consider,
and we do not reach, the question whether
this is the only permissible reading of the
statute.”
4
On February 19, 2025, President
Trump issued Executive Order 14218,
Ending Taxpayer Subsidization of Open
Borders (90 FR 10581). The Executive
Order directs Federal agencies, among
other actions, to identify federally funded
programs administered by the agency and
to ensure that such programs are operating
in compliance with Title IV of PRWORA.
5
Following the issuance of Executive
Order 14218, the Treasury Department
submitted a second request to OLC ask-
ing whether the interpretation that was
the subject of the 2020 OLC Opinion
represents the best reading of the law, in
light of Loper Bright Enterprises v. Rai-
mondo, 603 U.S. 369 (2024). This second
request also asked whether the refunded
portions of the premium tax credit (PTC)
under section 36B and the Saver’s Match
under section 6433 of the Code constitute
Federal public benefits. On November 19,
2025, in response, OLC issued a Memo-
randum Opinion to the General Counsel
of the Treasury Department concluding
that the interpretation addressed in the
2020 OLC Opinion reflects the best view
of the law and that the refunded portions
of the credits addressed in the 2020 OLC
Opinion, as well as the PTC and the Sav-
er’s Match, are Federal public benefits
under PRWORA.
6
III. Refunded Portion of Certain
Individual Refundable Income Tax
Credits as “Federal Public Benefits”
A. Individual Refundable Income Tax
Credits
In general, a tax credit is an amount
allowable as a reduction of tax liability
for the purpose of computing the tax or
refund due. A tax credit reduces a taxpay-
er’s liability dollar for dollar. Tax credits
are available to all taxpayers who meet
the eligibility requirements of the partic-
ular credit. If an amount allowable as a
refundable credit exceeds the tax imposed
by subtitle A of the Code (subtitle A)
(reduced by any applicable nonrefundable
credits), the amount of that excess is con-
sidered to be an overpayment of tax, which
the IRS may credit against any existing
Federal tax liabilities of the taxpayer and
must, subject to certain mandatory offsets,
refund any balance to the taxpayer. Sec-
tions 6401(b)(1) and 6402(a).
In general, to determine the overpay-
ment amount attributable to a refundable
tax credit, an individual taxpayer first
determines the taxpayer’s taxable income
for the tax year pursuant to section 63
of the Code and calculates the amount
of tax on the taxable income pursuant to
section 1 of the Code. The taxpayer then
adds any additions to tax under chapter
1 of the Code (chapter 1), such as excess
advance payments of the PTC and repay-
ment of certain other credits, and other
taxes imposed by subtitle A, such as the
tax on self-employment income. Once the
total subtitle A income tax liability is cal-
culated, the taxpayer reduces that amount
by the amount of the credits allowable
under subparts A, B, D and G of part IV of
subchapter A of chapter 1. If this reduced
tax liability amount is exceeded by the
amount of any refundable tax credits
under subpart C of part IV of subchapter
A of chapter 1, the excess is an overpay-
ment available for refund, credit, or offset.
See sections 6401(b)(1) and 6402(a) of the
Code.
B. Adoption Tax Credit
Section 23 of the Code allows an indi-
vidual to claim a tax credit for qualified
adoption expenses paid or incurred in
connection with an eligible child. Begin-
ning in 2025, under section 23(a)(4), up
to $5,000 (adjusted for inflation for future
years) of the credit is refundable.
7
Section
23(b)(2)(A) imposes income limitations
and section 23(h) provides several adjust-
ments for inflation, such as on the income
limitations, the cap on qualified adoption
expenses, and the cap on the refundable
portion of the credit. For example, for
taxable year 2025, the adoption tax credit
phases out for individuals with adjusted
gross income (AGI) over $259,190 and is
fully eliminated for individuals with AGI
of $299,190 or more.
The adoption tax credit is claimed by
an individual on a Federal income tax
return, and Form 8839, Qualified Adop-
tion Expenses. Section 23(f)(1) of the
Code requires married individuals to file a
joint return to claim the credit unless they
meet certain requirements. Section 23(f)
(2) of the Code requires the individual to
2
See Memorandum for Brian Callanan, General Counsel, Department of the Treasury, from Jennifer L. Mascott, Deputy Assistant Attorney General, Office of Legal Counsel, Re: Aliens’
Limited Eligibility for Certain Refundable Tax Credits at 1 (Dec. 9, 2020) (2020 OLC Opinion), available at www.justice.gov/olc/media/1419266/dl?inline.
3
2020 OLC Opinion at 1, 6. Although the 2020 OLC Opinion uses the term “refundable portion” instead of “refunded portion,” it is clear from the discussion on page 7 of the 2020 OLC Opin-
ion that the term “refundable portion” was used to refer to the amount of the refundable portion of certain tax credits that exceeds an individual taxpayer’s income tax liability and therefore
generates an overpayment. Accordingly, this notice of proposed rulemaking uses the term “refunded portion” instead of “refundable portion” for clarity.
4
Id. at 1-2.
5
Public Law 104-193, 100 Stat. 2105 (1996). Sections 400-451 of PRWORA are codified in title 8 of the United States Code (U.S.C.) at sections 1601 to 1646.
6
Memorandum Opinion for the General Counsel, Department of the Treasury, from Lanora C. Pettit, Deputy Assistant Attorney General, Office of Legal Counsel, re: Status of the Refundable
Portion of Certain Tax Credits as Federal Public Benefits, 49 Op. O.L.C. __, at 2 (Nov. 19, 2025) (2025 OLC Opinion), available at www.justice.gov/olc/media/1419131/dl.
7
Section 70402 of One Big Beautiful Bill Act (OBBBA), Pub. L. No. 119-21, 139 Stat. 72 (2025), added paragraph (4) to section 23(a) of the Code, effective for taxable years beginning
after December 31, 2024.

September 14, 2026 358 Bulletin No. 2026–38
provide the name, age, and tax identifica-
tion number (TIN) of the adopted child.
C. Child Tax Credit
Section 24(h)(2) of the Code allows
eligible taxpayers with a qualifying child
or children to claim a CTC of up to $2,200
for 2025 (adjusted for inflation for future
years) per qualifying child.
8
The CTC is
made up of a nonrefundable and refund-
able component. If the taxpayer has insuf-
ficient Federal income tax liability, the tax-
payer may be eligible for the refundable
portion of the CTC, generally called the
Additional Child Tax Credit (ACTC). The
ACTC, under section 24(d) of the Code,
is generally calculated using the earned
income formula. This formula allows for
a refundable credit equal to 15% of the
taxpayer’s earned income in excess of
$2,500, up to a maximum of $1,700 per
child for 2025 (adjusted for inflation for
future years). Under section 24(h)(3) of
the Code, the CTC (including the ACTC
portion) phases out for taxpayers with
modified AGI over $200,000 and mar-
ried individuals who file joint returns with
modified AGI over $400,000.
9
The actual
modified AGI level at which the credit
equals zero is dependent on the number of
qualifying children of the taxpayer.
The CTC is claimed by a taxpayer on
a Federal income tax return and Sched-
ule 8812, Credits for Qualifying Children
and Other Dependents. For taxable years
beginning after December 31, 2024, sec-
tion 24(h)(7) of the Code requires the tax-
payer to include the social security number
(SSN) of the qualifying child and of the
taxpayer (or, in the case of a joint return,
the SSN of at least one spouse ).
10
For pur-
poses of the CTC, an SSN qualifies only if
it is issued—(i) to a citizen of the United
States or pursuant to subclause (l) (or that
portion of subclause (III) that relates to
subclause (I)) of section 205(c)(2)(B)(i)
of the Social Security Act (a work eligible
SSN), and (ii) before the due date for such
return. For taxpayers filing a joint return,
only one spouse is required to have a work
eligible SSN. The other spouse must have
an SSN issued by the Social Security
Administration or an individual taxpayer
identification number (ITIN) issued by the
IRS on or before the due date of the return.
D. American Opportunity Tax Credit
Section 25A(a)(1) of the Code allows
an individual to claim a tax credit for qual-
ified education expenses paid for an eligi-
ble student for the first four years of post-
secondary education. Section 25A(b)(1)
of the Code limits the maximum annual
credit to $2,500 per eligible student.
Under section 25A(i) of the Code, 40%
of the credit amount is refundable. Under
section 25A(d) of the Code, the available
credit begins to phase out when the indi-
vidual’s modified AGI reaches $80,000
($160,000 for joint filers) and is com-
pletely phased out at $90,000 ($180,000
for joint filers). Under section 25A(g)(7),
an individual who is a nonresident alien
for any portion of the taxable year can-
not claim the AOTC unless the individual
elects to be treated as a U.S. resident alien
under section 6013(g) or (h) of the Code.
The AOTC is claimed by an individ-
ual on a Federal income tax return and
Form 8863, Education Credits (American
Opportunity Credit and Lifetime Learning
Credits). Section 25A(g)(6) of the Code
requires married individuals to file a joint
return to claim the AOTC, unless they
meet certain requirements. For taxable
years beginning after December 31, 2025,
section 25A(g)(1) of the Code requires
the individual to include the SSN of the
individual filing the return and of the indi-
vidual for whom the qualified education
expenses were paid if such individual is
other than the taxpayer or the taxpayer’s
spouse.
11
For purposes of the AOTC, an
SSN must be a work eligible SSN issued
to an individual by the Social Security
Administration before the due date for
such return.
E. Earned Income Credit
Section 32(a) of the Code allows
taxpayers with earned income to claim
a refundable tax credit in an amount
calculated using the taxpayer’s earned
income and the credit percentage and
income amount specified in section
32(b) of the Code. Eligibility for the
credit and the amount allowed as a
credit are based upon a number of fac-
tors, including the taxpayer’s earned
income, AGI, investment income, num-
ber of qualifying children of the tax-
payer as of the end of the taxpayer’s tax
year, U.S. residency, and identification
requirements. Section 32(c) of the Code
requires the individual’s qualifying chil-
dren to meet the relationship, residency,
and age requirements for purposes of
claiming the credit. Section 32(c) of the
Code also allows individuals who meet
certain age and U.S. residency require-
ments to claim the EITC if they do not
have qualifying children.
Individuals with income above certain
thresholds, which vary based on marital
status and number of qualifying children,
are ineligible for the EITC. Section 32(c)
(1)(D) of the Code does not allow an indi-
vidual who is a nonresident alien for any
portion of the taxable year to claim the
credit unless the individual elects to be
treated as a U.S. resident under section
6013(g) or (h) of the Code.
The EITC is claimed by an individual
on a Federal income tax return. Section
32(d) of the Code requires married indi-
viduals to file a joint return to claim the
credit, unless they meet certain require-
ments. If the individual is claiming the
EITC for a qualifying child, the individ-
ual must also file Schedule EIC, Earned
Income Credit. Section 32(m) of the Code
requires the individual to provide the SSN
for themselves, their spouse if married,
and any qualifying children. For purposes
of the EITC, the SSN must be (i) issued
to an individual by the Social Security
Administration (other than an SSN issued
pursuant to clause (II) (or the portion of
clause (III) that relates to clause (II)) of
section 205(c)(2)(B)(i)) of the Social
Security Act), and (ii) issued on or before
the due date for filing the return for the
taxable year.
8
Section 24(h)(2) of the Code was made permanent by section 70104 of the OBBBA, effective for taxable years beginning after December 31, 2024.
9
The income thresholds under section 24(h)(3) were made permanent by section 70104 of the OBBBA, , effective for taxable years beginning after December 31, 2024.
10
Section 24(h)(7) of the Code was amended by section 70104 of the OBBBA, effective for taxable years beginning after December 31, 2024.
11
Section 25A(g)(1) of the Code was amended by section 70605 of the OBBBA, effective for taxable years beginning after December 31, 2024.

Bulletin No. 2026–38 359 September 14, 2026
F. Premium Tax Credit
Section 36B provides a PTC to applica-
ble taxpayers who meet certain eligibility
requirements, and who enroll themselves,
or enroll a member of the taxpayer’s family,
in a qualified health plan (QHP) through an
Exchange. An individual is not eligible to
enroll in a QHP if the individual is not, or is
not reasonably expected to be for the entire
period for which enrollment is sought, a
citizen or national of the U.S., or an alien
lawfully present in the U.S. See section
1312 of the Affordable Care Act (ACA)
(42 U.S.C. 18032).
12
Section 36B(e)(1)
(A) provides that if one or more individ-
uals in a taxpayer’s family (including the
taxpayer) are aliens not lawfully present
in the U.S., the enrollment premiums and
adjusted monthly premiums for the appli-
cable benchmark plan otherwise taken into
account in determining the taxpayer’s PTC
must be reduced by the portion of such pre-
miums attributable to the individuals who
are aliens not lawfully present in the U.S.
The OBBBA amended section 36B(e)(1) to
provide that for tax years beginning after
December 31, 2026, such premiums must
also be reduced for aliens who are lawfully
present in the U.S. but who are not eligible
aliens, a narrower category of non-citizens.
G. Saver’s Match
Section 6433 allows certain low- and
moderate-income individuals who make
qualified retirement savings contributions
to receive matching contributions of up to
$1,000 (Saver’s Match contributions) paid
by the Secretary of the Treasury or the
Secretary’s delegate (Secretary) to appli-
cable retirement savings vehicles for tax
years beginning after December 31, 2026.
Eligible individuals may elect to have
matching contributions of less than $100
“treated as a credit allowed by subpart C
of part IV of subchapter A of chapter 1.”
Section 6433(a)(2)(B).
H. Application of Federal Public Benefit
Definition
PRWORA defines “Federal public ben-
efit”, in relevant part, to encompass cer-
tain types of benefits for which payments
or assistance are provided to an individual,
household, or family eligibility unit by an
agency of the United States or by appro-
priated funds of the United States.
13
In
analyzing this definition’s application to
individual refundable income tax credits,
OLC first examined whether the refunded
portion of such credits constitutes a “ben-
efit.”
14
OLC opined that the refunded por-
tion of such credits is a benefit based on
the ordinary meaning of the word since it
results in a payment from the Federal gov-
ernment to the taxpayer that goes beyond
a return of money paid by the taxpayer to
the Federal government.
15
OLC also opined that the refunded
portion of individual refundable income
tax credits provides a “payment” because
it gives the taxpayer money that the tax-
payer did not earn and would not have
received but for the existence of the gov-
ernment program.
16
OLC distinguished
the refunded portion of individual refund-
able income tax credits from an “ordi-
nary tax refund,” which it described as a
return to the taxpayer of his own money
that Treasury had held until the taxpayer’s
net obligations for the tax period could
be settled. Finally, OLC opined that the
refunded portion of an individual refund-
able income tax credit is provided to an
individual, household, or family eligibility
unit (that is, the taxpayer, who is either an
individual or the joint-filing members of
a household) by an agency (the Treasury
Department, through the IRS) or by appro-
priated funds of the United States (namely
the permanent indefinite appropriation of
amounts necessary for refunding internal
revenue collections in 31 U.S.C. 1324).
17
After concluding this general analysis,
OLC next considered whether each of the
EITC, ACTC, and AOTC falls within the
kinds of benefits identified in 8 U.S.C.
1611(c)(1)(B), which are “any retire-
ment, welfare, health, disability, public
or assisted housing, postsecondary edu-
cation, food assistance, unemployment
benefit or any other similar benefit. . . .”
18

OLC opined that both the EITC and the
ACTC are welfare or other similar bene-
fits and that the AOTC is a postsecondary
education benefit. In 2025, OLC opined
that the PTC is a health or similar benefit
and the Saver’s Match is a retirement or
similar benefit.
19
In sum, OLC concluded
that the refunded portion of the EITC,
ACTC, AOTC, PTC, and Saver’s Match
are “Federal public benefits” as defined
in PRWORA. The Treasury Department
and the IRS incorporate the reasoning and
conclusions of the 2020 and 2025 OLC
Opinions for purposes of these proposed
regulations unless otherwise described in
this preamble.
The proposed regulations would apply
PRWORA to the following individual
refundable income tax credits: the (1)
adoption tax credit, (2) CTC, (3) AOTC,
and (4) EITC, collectively referred to
as the “affected refundable tax credits”
in this notice of proposed rulemaking.
While the adoption tax credit, which
was made partially refundable by the
12
The Affordable Care Act refers to the Patient Protection and Affordable Care Act (Pub. L. 111-148, enacted on March 23, 2010), as amended by the Health Care and Education Reconcilia-
tion Act of 2010 (Pub. L. 111-152, enacted on March 30, 2010) and OBBBA. While the ACA does not define “lawfully present,” it is defined in regulations and includes valid nonimmigrant
status holders. See 45 CFR 155.20.
13
8 U.S.C. 1611(c) defines “Federal public benefit as follows:
(1) Except as provided in paragraph (2), for purposes of this chapter the term “Federal public benefit” means—
(A) any grant, contract, loan, professional license, or commercial license provided by an agency of the United States or by appropriated funds of the United States; and
(B) any retirement, welfare, health, disability, public or assisted housing, postsecondary education, food assistance, unemployment benefit, or any other similar benefit for which
payments or assistance are provided to an individual, household, or family eligibility unit by an agency of the United States or by appropriated funds of the United States.
14
2020 OLC Opinion at 6-7.
15
When describing how a refundable credit may provide a payment to a taxpayer who owes less tax than the amount of the credit, the 2020 OLC Opinion relies on sections 6401(b) and 6402
of the Code. See 2020 OLC Opinion at 1.
16
Id. at 7.
17
Id. at 8.
18
2020 OLC Opinion at 11-14; 2025 OLC Opinion at 16-19.
19
2025 OLC Opinion at 2 and 18-19.
20
However, the adoption credit previously was made fully refundable by the ACA for tax years 2010 and 2011. See section 10909 of the ACA.

September 14, 2026 360 Bulletin No. 2026–38
OBBBA
20
, has not been addressed by
OLC, it is included in the proposed reg-
ulations as a “similar benefit.” Though
the list of enumerated benefits in sec-
tion 401(c)(1)(B) of PRWORA does not
include any items that relate to adoption,
the Department of Health and Human
Services (HHS) has determined that
Federal adoption assistance benefits are
Federal public benefits.
21
The adoption
tax credit, although not identical, is suffi-
ciently similar to Federal adoption assis-
tance benefits in that it provides a Federal
incentive to promote adoptions, and thus,
it would make sense to treat it the same
way for purposes of PRWORA. Accord-
ingly, the proposed regulations would
treat the refunded portion of the adop-
tion tax credit as a Federal public benefit
within the meaning of PRWORA.
The proposed regulations would not
apply PRWORA to the refunded portion
of the PTC. Although OLC determined
that the refunded portion of the PTC is
a Federal public benefit for purposes of
PRWORA, it stated that its conclusion
does not automatically mean that all
aliens who are not qualified aliens under
PRWORA are ineligible to receive it, not-
ing that “Congress can always supersede
existing statutes, including PRWORA,
with later-[en]acted laws.”
22
OLC further
noted that Congress addressed restric-
tions on the PTC by including specific
statutory language on immigration status
in two later-enacted statutes, the ACA
and OBBBA. See section 36B(e) (limit-
ing the PTC for the coverage of an alien
to aliens lawfully present for tax years
beginning before January 1, 2027, and
to eligible aliens for tax years beginning
after December 31, 2026). The proposed
regulations would not apply PRWORA
to the refunded portion of the PTC based
on the view that these restrictions super-
sede and override PRWORA. Under
both the ACA and OBBBA, Congress
specifically addressed immigration sta-
tus as it relates to the computation of and
eligibility for the PTC. As an example,
under the ACA, Congress allowed only
U.S. citizens, U.S. nationals, or “law-
fully present” aliens to enroll in a QHP
through an Exchange, and a taxpayer
could only receive the PTC for the cov-
erage of these enrollees. Congress also
provided a special rule that allowed
aliens lawfully present in the U.S. who
were ineligible for Medicaid because of
their immigration status to receive the
PTC despite having household income
that generally would make them ineligi-
ble for the PTC. See section 36B(c)(1)
(B) as in effect for taxable years begin-
ning on or before December 31, 2025.
Thus, for PTC purposes, Congress not
only restricted the allowance of the PTC
on the basis of specific immigration
status, but it specifically allowed those
who were ineligible for Medicaid, due
to the PRWORA limitations, to receive
the PTC. Under the OBBBA, Congress
further restricted aliens’ eligibility for
the PTC by disallowing a PTC for the
coverage of aliens who are not “eligible
aliens,” a narrower category than quali-
fied aliens under PRWORA. See section
36B(e)(2).
In addition, the OBBBA enacted a new
program to be administered under the
Code, the Trump Accounts Contribution
Pilot Program. Although not a tax credit,
section 6434 of the Code provides for a
one-time, $1,000 pilot program contribu-
tion paid by the Secretary into an eligible
child’s Trump account.
23
Contributions
under the Pilot Program are restricted to
children who are U.S. citizens. See sec-
tion 6434(c)(3). Accordingly, there is no
need to determine whether the Trump
Accounts Contribution Pilot Program is
a Federal public benefit under PRWORA
because, even if it is, the OBBBA pro-
vision limiting account contributions to
U.S. citizens would supersede and over-
ride PRWORA.
Finally, regarding the Saver’s Match,

which is effective for tax years begin-
ning in 2027, the Treasury Department
and IRS intend to promulgate proposed
regulations regarding the Saver’s Match
separately.
Explanation of Provisions
I. Refunded Portion of Certain Individual
Refundable Income Tax Credits Are
Federal Public Benefits Under PRWORA
These proposed regulations would pro-
vide that PRWORA is applicable to the
refunded portion of the affected refund-
able tax credits. Specifically, proposed
§§1.23-2(a), 1.24-3(a), 1.25A-7(a), and
1.32-4(a) each would provide that, pursu-
ant to PRWORA, aliens who are not qual-
ified aliens are not eligible to receive the
Federal public benefit of the refunded por-
tion of the affected refundable tax credits
under sections 23, 24, 25A and 32, respec-
tively.
Proposed §1.32-4(b) would set forth
definitions of the operative PRWORA
terms that apply for purposes of apply-
ing proposed §1.32-4(a). For example,
proposed §1.32-4(b)(1) would provide
that for purposes of applying PRWORA
to the refunded portion of the EITC, the
term “alien” has the same definition
as in section 101(a) of the Immigra-
tion and Nationality Act, Pub. L. No.
82-414, 66 Stat. 163, 8 U.S.C. 1101(a)
(3). Proposed §1.32-4(b)(4) would pro-
vide that the term “qualified alien” has
the same definition as in section 431(b)
of PRWORA (8 U.S.C. 1641(b)).
Finally, consistent with the OLC con-
clusion that the refunded portions of
the affected refundable tax credits (that
is, the portion that exceeds the indi-
vidual’s tax liability and generates an
overpayment under 26 U.S.C. 6401(b)
(1)) are Federal public benefits within
the meaning of 8 U.S.C. 1611(c), pro-
posed §1.32-4(b)(2) would adopt this
same definition of a Federal public ben-
efit for purposes of applying proposed
§1.32-4(a). Sections 1.23-2(b), 1.24-
3(b), and 1.25A-7(b), would adopt all
of the PRWORA operative definitions
applicable to the affected refundable
tax credits by cross reference to §1.32-
4(b).
21
See HHS Notice 63 F.R. 41658 (August 4, 1998) (stating that HHS adoption assistance programs are generally Federal public benefits). This Notice was revised to include additional pro-
grams as Federal public benefits in 2025 (90 F.R. 31232) (July 14, 2025).
22
2025 OLC Opinion at 18.
23
The Treasury Department and the IRS recently issued proposed regulations concerning section 6434. Trump Accounts Contribution Pilot Program, 91 FR 11203 (Mar. 9, 2026).

Bulletin No. 2026–38 361 September 14, 2026
II. Definition of Refunded Portion of
Refundable Tax Credit
The proposed regulations would pro-
vide that only the refunded portion of an
affected refundable tax credit is a Federal
public benefit. Accordingly, if the tax-
payer is eligible for the affected refund-
able tax credit under the Code, the pro-
posed regulations would bar receipt only
of the portion of the sum of those affected
refundable tax credits that exceeds the
income tax liability imposed by subtitle A
(reduced by credits allowable under sub-
parts A, B, D, and G of part IV of sub-
chapter A of chapter 1).
24
Although the
proposed definition of a Federal public
benefit is similar to what is considered
to be an overpayment in section 6401(b)
(1), it is not the same because it is lim-
ited to affected refundable tax credits. If
the taxpayer is not a U.S. citizen, U.S.
national, or qualified alien, the amount
considered to be the overpayment under
section 6401(b) that is available for credit,
offset, or refund, which may include other
refundable tax credits that are not affected
refundable tax credits, would be reduced
by the amount of the Federal public ben-
efit.
Proposed §§ 1.23-2(d), 1.24-3(d),
1.25A-7(d), and 1.32-4(d) would clarify
who can receive the refunded portion of
the affected refundable tax credit under
PRWORA by providing that unless a tax-
payer is a U.S. citizen, U.S national, or
qualified alien, the taxpayer is not eligible
to receive a refund, credit, or offset of the
refunded portion of the affected refund-
able tax credit.
III. Timing of Alien Status Determination
As explained in the Background sec-
tion of this preamble, to be a qualified
alien, an individual must fall within one
of the defined categories in 8 U.S.C.
1641(b) “at the time the alien applies for,
receives, or attempts to receive a Federal
public benefit.” The proposed regulations
would provide that an alien must be a
qualified alien, for purposes of receiv-
ing the refunded portion of the affected
refundable tax credits, on the date the
alien files a Federal income tax return
first claiming the affected refundable tax
credit. This rule would apply to the Fed-
eral income tax return first claiming the
affected refundable tax credit, which may
be, for example, an early return, amended
return, or late return. Using the filing date
the taxpayer first claimed the credit would
best align Code and tax administration
concepts with PRWORA’s requirement
that an alien be a qualified alien at the time
the alien applies for, attempts to receive,
or receives the Federal public benefit. In
addition, under the Code, a taxpayer either
claims or does not claim a credit, and por-
tions of a single credit cannot be claimed at
different times. Consequently, the date on
which the taxpayer first claims the credit is
the most appropriate date for determining
whether the taxpayer satisfies PRWORA’s
qualified alien requirement for the Federal
public benefit. Accordingly, sections 1.23-
2(e), 1.24-3(e), 1.25A-7(e), and 1.32-4(e)
of the proposed regulations would provide
that each taxpayer claiming one or more
of the affected refundable tax credits must
be a U.S. citizen, U.S. national, or qual-
ified alien on the date of filing an initial
or amended Federal income tax return
first claiming the credit for the taxable
year in order to be eligible to receive the
refunded portion of the tax credit. Pro-
posed §§ 1.23-2(f), 1.24-3(f), 1.25A-7(f),
and 1.32-4(f) would provide examples
illustrating the applicability of the timing
rule to the claim of the refunded portion of
an affected refundable tax credit.
I V. Joint Returns with Only One Spouse
Meeting the Requirements Under
PRWORA.
The EITC, AOTC, and the adoption tax
credit generally require married individu-
als to file a joint return to claim the credit.
The CTC does not require spouses to file a
joint return, but spouses may elect to file
a joint return. If married individuals filing
a joint return meet the Code’s eligibility
requirements of the specific refundable tax
credit being claimed, and the amount of the
affected refundable tax credit(s) exceeds
the joint filers’ tax liability, then the pro-
posed regulations would require that one
of the joint filers be a U.S. citizen, U.S.
national, or qualified alien to receive the
joint refund, credit, or offset of the refunded
portion of any of the affected refundable
tax credits. See proposed §§ 1.23-2(b),
1.24-3(b), 1.25A-7(b), and 1.32-4(b)(4).
V. Self-Certification
Under the proposed regulations, each
individual (or one spouse in the case of a
joint return) claiming an affected refund-
able tax credit that results in a Federal
public benefit would be required to pro-
vide a declaration under penalty of perjury
stating that the individual is a U.S. citizen,
U.S. national, or qualified alien who is eli-
gible to receive the claimed refund under
PRWORA. This declaration or attestation
would need to be made on the appropri-
ate Federal income tax return, amended
tax return, or schedule as required by the
IRS. The IRS intends to update forms and
instructions to reflect this requirement.
Under section 6061(a) of the Code, all
returns and refund claims must “be signed
in accordance with forms or regulations
prescribed by the Secretary.” See also
§ 1.6061-1(a). These documents must also
be “verified by a written declaration that
[they are] made under the penalties of per-
jury.” Section 6065 of the Code; see also
§§ 1.6065-1(a), 301.6065-1, § 301.6402-
2(b)(1). An individual who fails to provide
the required declaration in the manner and
on the form or schedule required by the
IRS would not be eligible to receive the
refunded portion of any of the affected
refundable tax credits claimed on the
return for the taxable year.
Section 7206 of the Code provides that
willfully providing incorrect or untrue
information on a tax return constitutes a
felony. Penalties for violations of sec-
tion 7206 include liability for a fine up to
$100,000 and being sentenced to up to 3
years in prison. See also section 7207 of
the Code. Additionally, 18 U.S.C. 1015(e)
punishes as a felony any knowing false
statement that one is a citizen or a national
of the United States with the intent to
obtain any Federal or State benefit or ser-
vice. Finally, with respect to Federal pub-
lic benefits, 18 U.S.C. 1001 provides that
24
If a taxpayer claims more than one of the affected refundable tax credits (for example, both ACTC and AOTC), then the “refunded portion” of the affected refundable tax credits refers to
the total amount of such credits exceeding tax liability. The claimed credit amounts are added together before determining the amount of the credits exceeding tax liability.

September 14, 2026 362 Bulletin No. 2026–38
it is a felony to knowingly and willfully
make any materially false, fictitious, or
fraudulent statement or representation in
any matter within the jurisdiction of any
branch of the Federal Government.
Proposed Applicability Date
These proposed regulations are pro-
posed to apply for taxable years ending on
or after the date these regulations are pub-
lished as final regulations in the Federal
Register.
Special Analyses
I. Regulatory Planning and Review—
Economic Analysis
Executive Orders 12866 and 13563
direct agencies to assess costs and ben-
efits of available regulatory alternatives
and, if regulation is necessary, to select
regulatory approaches that maximize net
benefits (including potential economic,
environmental, public health and safety
effects, distributive impacts, and equity).
Executive Order 13563 emphasizes the
importance of quantifying both costs and
benefits, reducing costs, harmonizing
rules, and promoting flexibility.
The proposed regulations have been
designated by the Office of Management
and Budget’s (OMB’s) Office of Infor-
mation and Regulatory Affairs (OIRA) as
subject to review under Executive Order
12866 pursuant to the Memorandum of
Agreement (MOA, July 4, 2025) between
the Treasury Department and the Office
of Management and Budget regarding
review of tax regulations. OIRA has deter-
mined that the proposed rulemaking is a
significant regulatory action and subject
to review under Executive Order 12866
and section 1(b) of the Memorandum of
Agreement. Accordingly, the proposed
regulations have been reviewed by OMB.
The proposed rulemaking is not expected
to be considered a regulatory action under
Executive Order 14192 because it does
not impose any more than de minimis reg-
ulatory costs.
A. Need for Regulation
Tax credits provide a dollar-for-dollar
reduction in tax liability. When a tax credit
is refundable, any portion of the credit
that exceeds the taxpayer’s liability may
be refunded to the taxpayer. Because tax
credits are typically designed to advance
specific policy objectives, refundability
ensures that low- and moderate-income
taxpayers with little or no income tax lia-
bility can still benefit, thereby supporting
the intended purpose of the credit. Some
individual refundable income tax credits
have similar eligibility requirements, but
the specific rules generally differ across
credits. For example, the EITC is intended
to encourage work and requires taxpayers
to have earned income; the CTC, designed
to support families, conditions eligibility
on the presence of qualifying children; and
the AOTC is aimed at reducing the cost of
higher education and requires enrollment
of an eligible student in an eligible institu-
tion and payments of qualified expenses.
The Personal Responsibility and Work
Opportunity Reconciliation Act of 1996
(PRWORA) defines the term “Federal
public benefit” as “any retirement, wel-
fare, health, disability, public or assisted
housing, postsecondary education, food
assistance, unemployment benefit, or any
other similar benefit for which payments
or assistance are provided to an individ-
ual, household, or family eligibility unit
by an agency of the United States or by
appropriated funds of the United States.”
Under PRWORA, other than in limited
exceptions, aliens who are not qualified
aliens are not eligible for any Federal pub-
lic benefits. The Treasury Department and
the IRS have not previously considered
individual refundable income tax credits
to constitute Federal public benefits under
PRWORA.
In 2020, in response to the Treasury’s
request for an opinion, the Office of
Legal Counsel (OLC) at the Department
of Justice opined (2020 Opinion) that the
refunded portions of the EITC, CTC, and
AOTC satisfies PRWORA’s definition of
a Federal public benefit. Subsequently in
November 2025, in response to the Trea-
sury’s second request for an opinion, the
OLC concluded in an opinion (2025 Opin-
ion) that its 2020 Opinion reflects the best
reading of the law and that the refunded
portions of certain individual refund-
able income tax credits are within the
meaning of Federal public benefits under
PRWORA.
The proposed regulations would clar-
ify how the term “Federal public benefit”
as used in PRWORA applies to certain
individual refundable income tax credits
administered under the Code.
B. The Statute and the Proposed
Regulations
The proposed regulations would apply
PRWORA to the following four individual
refundable income tax credits—the adop-
tion tax credit, the CTC, the AOTC, and
the EITC.
Section 23 of the Code allows eligible
taxpayers to claim the adoption tax credit
to offset the costs of adopting a child.
Beginning in tax year 2025, up to $5,000
of the credit is refundable. To claim the
credit, taxpayers must include on the
return the Taxpayer Identification Number
(TIN) of the adopted child. Married indi-
viduals must file a joint return to claim the
credit unless exceptions apply.
Section 24 allows eligible taxpayers to
claim the CTC of up to $2,200 for tax year
2025 (adjusted for inflation thereafter)
for each qualifying child. The refundable
portion of the CTC is referred to as the
additional child tax credit (ACTC), which
is calculated as 15 percent of the taxpay-
er’s earned income in excess of $2,500,
up to $1,700 per qualifying child for tax
year 2025 (adjusted for inflation thereaf-
ter). To be eligible, the qualifying child
and the taxpayer (or the taxpayer’s spouse
if filing jointly) must have work eligible
SSNs issued before the due date of the
tax return. For married individuals filing
a joint return, if only one spouse meets
the work eligible SSN requirements, the
other spouse must have an SSN or Indi-
vidual Taxpayer Identification number
(ITIN) issued on or before the due date of
the return. Married individuals who file
separate returns are eligible to claim the
CTC, but the credit begins to phase out at
a lower income level than for those filing
jointly.
Section 25A(a)(1) allows taxpayers to
claim the AOTC for qualified education
expenses paid for an eligible student for
the first four years of postsecondary edu-
cation. The maximum annual credit is
$2,500 per student, and 40 percent of the
credit amount is refundable. To be eligi-
ble, the taxpayer (or the taxpayer’s spouse

Bulletin No. 2026–38 363 September 14, 2026
if filing jointly) and the student (if not the
taxpayer or spouse) must have work eli-
gible SSNs issued before the due date of
the tax return. Married individuals must
file a joint return to claim the credit unless
exceptions apply.
Section 32 allows taxpayers with
earned income to claim the EITC, which
is fully refundable. The maximum EITC
amount varies with the number of qualify-
ing children the taxpayer has. For tax year
2025, the maximum credit amount is $649
for taxpayers with no qualifying child,
$4,328 for taxpayers with one qualifying
child, $7,152 for taxpayers with two qual-
ifying children, and $8,046 for taxpayers
with three or more qualifying children.
To be eligible, the taxpayer (both spouses
if filing jointly) as well as the qualifying
child must have valid SSNs issued on or
before the filing due date of the tax return.
For the EITC, an SSN is not valid if it
is issued solely to allow an individual to
receive or apply for a Federal funded ben-
efit. Married individuals must file a joint
return to receive the credit unless excep-
tions apply.
Under sections 6401 and 6402 of the
Code, when the amount of a refundable
tax credit (under subpart C of part IV of
subchapter A of chapter 1) exceeds the tax
imposed by subtitle A (reduced by nonre-
fundable tax credits), the amount of that
excess is treated as an overpayment of
tax and may be refunded to the taxpayer.
Specifically, under section 6402, the IRS
may credit the overpayment against any
Federal tax liabilities of the taxpayer and
shall, subject to certain mandatory offsets,
refund any balance to the taxpayer.
Under section 401(a) of PRWORA (8
U.S.C. 1611(a)), aliens who are not qual-
ified aliens as defined in 8 U.S.C. 1641
are not eligible for any Federal public
benefit as defined in PRWORA, with cer-
tain narrow exceptions. Section 431(b) of
PRWORA (8 U.S.C. 1641(b)) defines a
qualified alien as an alien who, at the time
the alien applies for, receives, or attempts
to receive a Federal public benefit, meets
certain alien status requirements, includ-
ing “(1) an alien who is lawfully admitted
for permanent residence under the Immi-
gration and Nationality Act, (2) an alien
who is granted asylum under section 208
of such Act, (3) a refugee who is admitted
to the United States under section 207 of
such Act, (4) an alien who is paroled into
the United States under section 212(d)(5)
of such Act for a period of at least 1 year,
(5) an alien whose deportation is being
withheld under section 243(h) of such Act
(as in effect immediately before the effec-
tive date of section 307 of division C of
Public Law 104-208) or section 241(b)(3)
of such Act (as amended by section 305(a)
of division C of Public Law 104-208), (6)
an alien who is granted conditional entry
pursuant to section 203(a)(7) of such Act
as in effect prior to April 1, 1980, (7) an
alien who is a Cuban and Haitian entrant
(as defined in section 501(e) of the Ref-
ugee Education Assistance Act of 1980),
or (8) an individual who lawfully resides
in the United States in accordance with
a Compact of Free Association referred
to in section 1612(b)(2)(G) of [title 8].”
Qualified aliens also include aliens who
have been battered or subject to extreme
cruelty in the United States and meet cer-
tain requirements.
These proposed regulations would
clarify that the eligibility restrictions
under PRWORA mentioned above would
apply to the refunded portion of the fol-
lowing four refundable tax credits—the
adoption tax credit, the CTC, the AOTC,
and the EITC. Furthermore, these pro-
posed regulations would provide that only
the refunded portion of an affected refund-
able tax credit is a Federal public benefit.
Accordingly, if the taxpayer is eligible for
the affected refundable tax credit under the
Code, these proposed regulations would
bar receipt only of the portion of the sum
of those affected refundable tax cred-
its that exceeds the income tax liability
imposed by subtitle A (reduced by credits
allowable under subparts A, B, D, and G
of part IV of subchapter A of chapter 1).
If the taxpayer is not a U.S. citizen, U.S.
national, or qualified alien, the amount
considered to be the overpayment under
section 6401(b) that is available for credit,
offset, or refund, which may include other
refundable tax credits would be reduced
by the amount of the Federal public ben-
efit. The proposed regulations would also
establish the timing, in accordance with
PRWORA, for determining the taxpay-
er’s eligibility for Federal public benefits
administered under the Code. Finally, the
proposed regulations would clarify the
application to joint returns with only one
spouse meeting the status requirements
under PRWORA.
C. Baseline
The Treasury Department and the IRS
have assessed the benefits and costs of the
proposed regulations relative to a no-ac-
tion baseline reflecting anticipated Fed-
eral income tax-related behavior in the
absence of these proposed regulations.
D. Affected Taxpayers
The Department of the Treasury and
the IRS estimate that, for tax year 2026,
49 million Federal individual income
tax returns (i.e., taxpayers) will claim at
least one of the four affected refundable
tax credits—the adoption tax credit, the
CTC, the AOTC, and the EITC. Of these
taxpayers, an estimated 24 million will
claim an affected refundable tax credit
that results in a Federal public benefit. The
Department of the Treasury and the IRS
do not have data on a taxpayer’s qualified
alien status with respect to PRWORA to
precisely estimate the number of affected
taxpayers. There is no direct data to esti-
mate the number of non-qualified aliens
whose claims for the affected refundable
tax credits would be disallowed under the
proposed regulation. A rough estimate
based on data from the Social Security
Administration shared with the IRS for
tax administration, United States Citizen-
ship and Immigration Services statistics,
25

and historical Department of Homeland
Security estimates of non-immigrants
residing in the U.S.
26
suggests that, of the
24 million taxpayers claiming the Fed-
eral public benefit, a range of 200,000
to 700,000 taxpayers (0.8 to 2.8 percent)
would likely be ineligible to receive it for
tax year 2026 because they do not meet the
25
U.S. Citizenship and Immigration Services, Immigration and Citizenship Data. Available at www.uscis.gov/tools/reports-and-studies/immigration-and-citizenship-data
26
Department of Homeland Security, Office of Immigration Statistics, Population Estimates of Nonimmigrants Residing in the United States: Fiscal Years 2017-2019. Available at https://
ohss.dhs.gov/sites/default/files/2023-2/ni_population_estimates_fiscal_years_2017_-_2019v2.pdf. Accessed August 3, 2026.

September 14, 2026 364 Bulletin No. 2026–38
qualified alien status requirements under
PRWORA. These estimated numbers of
affected taxpayers assume static behavior
and do not account for potential behavioral
responses to the proposed rulemaking,
once finalized, that would affect whether
a taxpayer claims an affected refundable
tax credit or whether the claim contains a
refunded portion.
E. Economic Effects of the Proposed
Regulations
These proposed regulations would
implement PRWORA’s requirements
for Federal public benefits adminis-
tered under the Code while minimizing
taxpayer burden and other economic
effects. In general, the proposed regula-
tions, which would clarify the process for
implementing PRWORA to the refunded
portions of the affected refundable tax
credits, are expected to have limited eco-
nomic effects. Under the Code, taxpayers
are generally required to have a valid SSN
to be eligible for these credits. For tax year
2026, approximately only 200 thousand to
700 thousand taxpayers are estimated to
be ineligible to receive the refund of the
overpayment, have it credited against Fed-
eral tax liabilities, or use it to offset non-
tax liabilities, due to the proposed regu-
lations. The Department of the Treasury
and the IRS do not have data on a taxpay-
er’s qualified alien status with respect to
PRWORA to precisely estimate the dollar
amount that would be disallowed under
the proposed regulations. The estimated
average amount of Federal public benefits
for all taxpayers whose claims include the
refunded portion of at least one affected
refundable tax credit is $3,656 in 2026.
Applying this average Federal public ben-
efit for all taxpayers to the estimated range
of affected taxpayers translates into an
estimate of $0.7 billion to $2.6 billion of
disallowed credits. In addition, these tax-
payers would still be eligible to receive the
nonrefunded portion of the credits if they
meet eligibility requirements for the cred-
its. Given the limited scope, any potential
behavioral responses by affected taxpay-
ers to the proposed regulations, such as
changes to the extensive or intensive mar-
gin of labor supply decisions, would not
be expected to have a significant impact
on the economy.
1. Identifying Claims of a Federal Public
Benefit
Under the proposed regulations, tax-
payers who claim any of the four affected
refundable tax credits would need to iden-
tify whether their claim for the credits
includes a Federal public benefit, which
these proposed regulations would limit
to the refunded portion of the credits.
Tax software, if used by the taxpayer, is
expected to automatically generate this
amount based on information provided
by taxpayers during the return preparation
process. This would reduce the compli-
ance burden for taxpayers using software
to complete their tax returns. The Depart-
ment of the Treasury and the IRS estimate
that more than 96 percent of the Federal
individual income tax returns use assis-
tance from consumer or professional tax
software.
2. Self-Certification of Eligibility for a
Federal Public Benefit
As previously explained in the pream-
ble, taxpayers claiming an affected refund-
able tax credit that results in a Federal
public benefit would be required to pro-
vide a declaration or attestation, under the
penalty of perjury, stating if they are U.S.
citizens, U.S. nationals, or qualified aliens
under PRWORA who are eligible for the
Federal public benefit claimed. Taxpayers
would provide a written declaration on the
Federal income tax return or on a sched-
ule attached to the return, as prescribed
by the IRS, stating their status eligibility
for the Federal public benefit claimed. To
minimize compliance burden, taxpayers
would not be required to provide a sepa-
rate document attesting eligibility under
PRWORA.
3. Alternatives Considered
a. Individuals required to self-certify
eligibility status before identifying the
receipt of a Federal public benefit
An alternative to the aforemen-
tioned self-certification process is first to
require every individual who claims any
of the four affected refundable tax cred-
its to self-certify eligibility status and
then require aliens who are not qualified
aliens for Federal public benefits under
PRWORA to calculate the amount of the
overpayment they would not be eligible
for.
Relative to the self-certification process,
this alternative would subject fewer taxpay-
ers to the identification of overpayments but
would require more individuals, including
those whose claim for the affected refund-
able tax credits does not have a refunded
portion, to self-certify whether they are
U.S. citizens, U.S. nationals, or quali-
fied aliens under PRWORA. To restrict
the attestation of eligibility status only to
those who are required to self-certify under
PRWORA, i.e., those who claim a Federal
public benefit, the self-certification pro-
cess would require that taxpayers claiming
any of the affected refundable tax credits
first identify the refunded portion of their
claim and then only those whose claim has
a refunded portion would self-certify eli-
gibility status. Given the wide prevalence
of the use of consumer or professional tax
software in return preparation, the cost for
this calculation of the refunded portion is
expected to be insignificant for most tax-
payers.
b. Joint returns with one spouse meeting
the PRWORA requirements
For married individuals filing a joint
return, under these proposed regulations,
one spouse would be required to be a U.S.
citizen, U.S. national, or qualified alien
under PRWORA for the married individ-
uals to receive the full refunded portion of
the affected refundable tax credits, have
it credited against the couple’s Federal
tax liabilities, or use it to offset the cou-
ple’s non-tax liabilities. An alternative
approach would require married individ-
uals with one spouse who is not a quali-
fied alien to prorate the applicable credit
or credits based on IRS-prescribed allo-
cation rules that would account for each
spouse’s eligibility status and a range of
considerations specific to each credit. For
example, allocations for the EITC could
be based on which spouse had earned
income whereas allocations for the other
credits could be based on the share of
qualified expenses contributed by, or other
factors attributable to, each spouse. This
alternative is complex because it would
subject joint filers claiming the affected

Bulletin No. 2026–38 365 September 14, 2026
refundable tax credits to new credit allo-
cation rules and additional tax computa-
tions that would not have been required
otherwise. In addition, depending on the
credit and the allocation rules, the IRS
may lack the necessary third-party infor-
mation reports to verify the spouse’s con-
tributed expenses, income, or other factors
used to determine the credit amount for
which the qualified alien spouse is eligi-
ble. To reduce taxpayer burden and poten-
tial return errors, the proposed regulations
provide that, for married individuals filing
a joint return, if one spouse is a U.S. cit-
izen, a U.S. national, or a qualified alien,
then the other spouse would be treated as
a qualified alien.
F. Summary
Based on the available data and analy-
sis, the Treasury Department and the IRS
estimate that the economic costs and ben-
efits of the proposed regulations will be
small. The Treasury Department and the
IRS invite public comments on potential
alternatives and additional data related to
the economic effects that will result from
these proposed regulations.
II. Paperwork Reduction Act
The Paperwork Reduction Act of 1995
(44 U.S.C. 3501-3520) (PRA) generally
requires that a Federal agency obtain the
approval of the Office of Management
and Budget (OMB) before collecting
information from the public, whether that
collection of information is mandatory,
voluntary, or required to obtain or retain
a benefit. An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless it displays a valid control number
assigned by the OMB.
The collections of information in these
proposed regulations contain reporting
and recordkeeping requirements that are
necessary to ensure that individual refund-
able income tax credits are not received by
aliens who are not qualified aliens pursu-
ant to PRWORA. The collections will be
used by the individual taxpayers claiming
one or more of the affected refundable
income tax credits to certify their legal
status. The IRS will use the information
for tax compliance purposes.
The proposed regulations include
reporting requirements for taxpayers to
self-certify under penalty of perjury that
they are a U.S. citizen, U.S. national, or
qualified alien who is eligible to receive
the claimed refund as described in pro-
posed §§1.23-1, 1.23-2, 1.24-2, 1.24-3,
1.25A-6, 1.25A-7, 1.32-1 and 1.32-4. Tax-
payers will be able to complete this certi-
fication by completing Schedule 3-A, or
other form as determined by the Treasury
Secretary. Schedule 3-A, or its successor
form, will be filed along with their 1040
tax return.
The likely respondents are individuals
who file a Form 1040. For purposes of
the PRA, the reporting requirements and
associated burden will be included in the
Paperwork Reduction Act Submissions
associated with Form 1040 (OMB control
number 1545-0074) and approved by the
OMB in accordance with the PRA proce-
dures under 5 CFR 1320.10.
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 required by 26 U.S.C. 6103. These
recordkeeping requirements are consid-
ered general tax records under §1.6001-
1(e) and are already approved by the
OMB under 1545-0074. This proposed
regulation is not creating or changing the
general recordkeeping requirements under
§1.6001-1(e).
III. Regulatory Flexibility Act
The Secretary of the Treasury hereby
certifies that these proposed regulations
would not have a significant economic
impact on a substantial number of small
entities pursuant to the Regulatory Flex-
ibility Act (5 U.S.C. chapter 6). The pro-
posed rules would not impose any require-
ment or obligation upon small entities.
Accordingly, a regulatory flexibility anal-
ysis under the Regulatory Flexibility Act
is not required.
IV. Section 7805(f)
Pursuant to section 7805(f) of the Code,
the proposed regulations will be submit-
ted to the Chief Counsel for the Office of
Advocacy of the Small Business Admin-
istration for comment on their impact on
small business.
V. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates
Reform Act of 1995 (UMRA) requires
that agencies assess anticipated costs and
benefits and take certain other actions
before issuing a final rule that includes
any Federal mandate that may result in
expenditures in any one year by a State,
local, or Tribal government, in the aggre-
gate, or by the private sector, of $100
million in 1995 dollars, updated annually
for inflation. These proposed regulations
do not include any Federal mandate that
may result in expenditures by State, local,
or Tribal governments, or by the private
sector in excess of that threshold.
VI. Executive Order 13132: Federalism
Executive Order 13132 (Federalism)
prohibits an agency from publishing any
rule that has federalism implications if
the rule either imposes substantial, direct
compliance costs on State and local gov-
ernments, and is not required by statute,
or preempts State law, unless the agency
meets the consultation and funding
requirements of section 6 of the Execu-
tive order. These proposed regulations
would not have federalism implications
and would not impose substantial direct
compliance costs on State and local gov-
ernments or preempt State law within the
meaning of the Executive order.
Comments and Public Hearing
Pursuant to the Administrative Proce-
dure Act at 5 U.S.C. 553(b)(4), a plain
language summary of these proposed reg-
ulations is available on the rulemaking
docket at https://www.regulations.gov.
Before the proposed regulations are
adopted as final regulations, consider-
ation will be given to comments that are
submitted timely to the IRS as prescribed
in the preamble under the ADDRESSES
heading. The Treasury Department and
the IRS request comments on all aspects
of the proposed regulations. Specifically,
the Treasury Department and the IRS
request comments on the proposed rule

September 14, 2026 366 Bulletin No. 2026–38
of eligibility determination. All comments
submitted will be available at https://www.
regulations.gov or upon request.
A public hearing is being held on Octo-
ber 14, 2026, beginning at 10 a.m. ET at
the Internal Revenue Service Building,
1111 Constitution Avenue, NW, Washing-
ton, DC. Due to building security proce-
dures, visitors must enter at the Consti-
tution Avenue entrance. In addition, all
visitors must present photo identification
to enter the building. Because of access
restrictions, visitors will not be admitted
beyond the immediate entrance area more
than 30 minutes before the hearing starts.
Participants may alternatively attend the
public hearing by telephone.
The rules of 26 CFR 601.601(a)(3)
apply to the hearing. Persons who wish to
present oral comments at the hearing must
submit an outline of the topics to be dis-
cussed as well as the time to be devoted
to each topic by October 5, 2026. A period
of ten minutes will be allocated to each
person for making comments. After the
deadline for receiving outlines has passed,
the IRS will prepare an agenda contain-
ing the schedule of speakers. Copies of
the agenda will be made available free of
charge at the hearing. If no outlines of the
topics to be discussed at the hearing are
received by October 5, 2026, the public
hearing will be cancelled. If the public
hearing is cancelled, a notice of cancel-
lation of the public hearing will be pub-
lished in the Federal Register.
Individuals who want to testify in
person at the public hearing must send
an email to publichearings@irs.gov to
have their name added to the building
access list. The subject line of the email
must contain the regulation number REG-
119882-25 and the language TESTIFY In
Person. For example, the subject line may
say: Request to TESTIFY In Person at
Hearing for REG-119882-25.
Individuals who want to testify by
telephone at the public hearing must send
an email to publichearings@irs.gov to
receive the telephone number and access
code for the hearing. The subject line
of the email must contain the regulation
number REG-119882-25 and the language
TESTIFY Telephonically. For example,
the subject line may say: Request to TES-
TIFY Telephonically at Hearing for REG-
119882-25.
Individuals who want to attend the
public hearing in person without testify-
ing must also send an email to publichear-
ings@irs.gov to have their name added to
the building access list. The subject line
of the email must contain the regulation
number REG-119882-25 and the language
ATTEND In Person. For example, the
subject line may say: Request to ATTEND
Hearing in Person for REG-119882-25.
Requests to attend the public hearing must
be received by 5:00 p.m. ET on October
9, 2026.
Individuals who want to attend the pub-
lic hearing telephonically without testifying
must also send an email to publichearings@
irs.gov to receive the telephone number and
access code for the hearing. The subject line
of the email must contain the regulation
number REG-119882-25 and the language
ATTEND Hearing Telephonically. For
example, the subject line may say: Request
to ATTEND Hearing Telephonically for
REG-119882-25. Requests to attend the
public hearing must be received by 5:00
p.m. ET on October 9, 2026.
Hearings will be made accessible to
people with disabilities. To request spe-
cial assistance during the hearing, contact
the Publications and Regulations Section
of the Office of Associate Chief Counsel
(Procedure and Administration) by send-
ing an email to publichearings@irs.gov
(preferred) or by telephone at (202) 317-
6901 (not a toll-free number) by at least
October 8, 2026.
Statement of Availability of Documents
Opinions from the Office of Legal
Counsel, Department of Justice, (OLC)
that are cited in this preamble are avail-
able by visiting the OLC website at https://
www.justice.gov/olc/opinions-main (if
selected for official publication). If not
selected for official publication, an opin-
ion may be available at https://www.jus-
tice.gov/olc/olc-foia-electronic-reading-
room if it has been posted publicly by
the OLC as a matter of discretion, gener-
ally because it is the subject of repeated
requests or of public or historical interest.
The 2020 OLC Opinion cited in this pre-
amble is currently available at the OLC’s
electronic reading room. The 2025 OLC
Opinion cited in this preamble is available
at the OLC’s main opinions page.
Drafting Information
The principal authors of these proposed
regulations are personnel from the Office
of the Associate Chief Counsel (Income
Tax & Accounting), IRS. However, other
personnel from the Treasury Department
and the IRS participated in their develop-
ment.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and record-
keeping requirements.
Proposed Amendments to the
Regulations
Accordingly, the Treasury Department
and the IRS propose to amend 26 CFR
part 1 as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 is amended by adding entries for
§§ 1.23-2, 1.24-3, 1.25A-7, and 1.32-4 in
numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
* * * * *
Section 1.23-2 also issued under 8
U.S.C. 1614.
* * * * *
Section 1.24-3 also issued under 8
U.S.C. 1614.
* * * * *
Section 1.25A-7 also issued under 8
U.S.C. 1614.
* * * * *
Section 1.32-4 also issued under 8
U.S.C. 1614.
* * * * *
Par. 2. Sections 1.23-1 and1.23-2 are
added to read as follows:
§1.23-1 [Reserved]
§1.23-2 Application of the Personal
Responsibility and Work Opportunity
Reconciliation Act of 1996.
(a) In general. Section 23 of the Inter-
nal Revenue Code (Code) allows eligible
individuals a credit of an amount deter-
mined under section 23 (section 23 credit)
against the tax imposed by subtitle A of
the Code for the taxable year. This section

Bulletin No. 2026–38 367 September 14, 2026
applies Title IV of PRWORA with respect
to the refunded portion of the section 23
credit. See 8 U.S.C. 1611(a), (c)(1).
(b) Definitions. For the definition of
terms used for purposes of this section,
see §1.32-4(b).
(c) Refunded portion of the section
23 credit—(1) In general. The refunded
portion of the section 23 credit is the por-
tion of the section 23 credit determined
under section 23(a)(4) that exceeds the
tax imposed on the taxpayer by subtitle A
of the Code (reduced by credits allowable
under subparts A, B, D, and G of part IV
of subchapter A of chapter 1 of the Code).
(2) Multiple individual refundable
income tax credits claimed. In the event
the taxpayer has also claimed a refundable
credit under sections 24, 25A, or 32 of the
Code, or another individual refundable
income tax credit for which the refunded
portion is specified by the Secretary in
regulations as subject to PRWORA, the
taxpayer must first sum all such refund-
able credits claimed, and then calculate
the portion of the sum of these credits that
exceeds the tax imposed on the taxpayer
by subtitle A of the Code (reduced by
credits allowable under subparts A, B, D,
and G of part IV of subchapter A of chap-
ter 1 of the Code). The refunded portion
of the section 23 credit is included within
this portion.
(d) Federal public benefit as applied
to section 23. The refunded portion of the
taxpayer’s section 23 credit is a Federal
public benefit. A taxpayer who satisfies
the requirements of section 23 is eligible
to receive the refunded portion of the sec-
tion 23 credit, have it credited against the
taxpayer’s unpaid tax liabilities, or have it
offset against specified non-tax liabilities,
only if the taxpayer is a U.S. citizen, U.S.
national, or qualified alien and so declares
under penalty of perjury (on the appropri-
ate Federal income tax return, amended
tax return, or schedule as required by the
IRS).
(e) Determination for eligibility of
refunded portion of section 23 credit. For
purposes of receiving the refunded portion
of the section 23 credit, having it credited
against the taxpayer’s unpaid tax liabili-
ties, or having it offset against specified
non-tax liabilities, a taxpayer’s status as
a U.S. citizen, U.S. national, or qualified
alien is determined on the date the tax-
payer files the taxpayer’s return for the
taxable year that first claims the section
23 credit (without regard to whether the
return is deemed by the Code to be filed
on another date).
(f) Examples. The following examples
illustrate the rules of this section. In each
example below, the taxpayer meets the
requirements under title 26 to claim the
section 23 credit for the taxable year:
(1) Example 1: Timely-filed return claiming the
tax credit. The due date of taxpayer A’s return is
April 15. A files A’s return for the taxable year on
April 15, claiming the section 23 credit. On April 15,
A is a U.S. citizen, U.S. national, or qualified alien.
Because A is a U.S. citizen, U.S. national, or quali-
fied alien on the date A files A’s return claiming the
section 23 credit for the taxable year, A is eligible to
receive the refunded portion of the section 23 credit,
have it credited against A’s unpaid tax liabilities, or
have it offset against A’s specified non-tax liabilities.
(2) Example 2: Claiming the tax credit on an
early return. The due date of taxpayer B’s return is
April 15. B files B’s return on February 1, claiming
the section 23 credit. On February 1, B is a U.S. cit-
izen, U.S. national, or qualified alien. Accordingly,
B is eligible to receive the refunded portion of the
section 23 credit, have it credited against B’s unpaid
tax liabilities, or have it offset against B’s specified
non-tax liabilities.
(3) Example 3: Claiming the tax credit on a
late return. The due date of taxpayer C’s return is
April 15. C does not file Form 4868, Application for
Automatic Extension of Time to File U.S. Individual
Income Tax Return, for the taxable year. On Novem-
ber 1, within the period of limitations prescribed in
section 6511 of the Code on filing a claim for refund,
C files C’s return claiming the section 23 credit. On
November 1, C is a U.S. citizen, U.S. national, or
qualified alien. Accordingly, C is eligible to receive
the refunded portion of the section 23 credit, have it
credited against C’s unpaid tax liabilities, or have it
offset against C’s specified non-tax liabilities.
(4) Example 4: Claiming the tax credit on an
amended return after a status change. The due date
of taxpayer D’s return is April 15. D files D’s return
for the taxable year on April 15, claiming the section
23 credit. However, on April 15, D is not a U.S. cit-
izen, U.S. national, or qualified alien. Accordingly,
D is not eligible to receive the refunded portion of
the section 23 credit, or to have it credited against
D’s unpaid tax liabilities or have it offset against
D’s specified non-tax liabilities. On December 1, D
becomes a U.S. citizen, U.S. national, or qualified
alien. On December 15, within the period of lim-
itation prescribed in section 6511 on filing a claim
for refund, D files an amended return for the taxable
year, updating D’s status under PRWORA. Although
D is a U.S. citizen, U.S. national, or qualified alien
on December 15, D was not a U.S. citizen, U.S.
national, or qualified alien when D first claimed the
section 23 credit, so D is not eligible to receive the
refunded portion of the section 23 credit.
(5) Example 5: Claiming the tax credit for
the first time on an amended return after a status
change. Same facts as paragraph (f)(4) of this section
(Example 4), except that D did not initially claim the
section 23 credit when D filed on April 15 and rather
claimed this credit for the first time on an amended
return filed on December 15. Since D is a U.S. cit-
izen, U.S. national, or qualified alien on December
15 when D first claimed the section 23 credit, D is
eligible to receive the refunded portion of the section
23 credit.
(6) Example 6: Determining the Federal Public
Benefit when the taxpayer claims the section 23 tax
credit and no other refundable tax credits. Taxpayer
E meets the section 23 requirements for a $6,120
adoption credit. The refundable amount of this
credit, determined under section 23(a)(4), is $5,120.
E claims no other individual refundable tax credits.
E’s subtitle A tax liability, reduced by the credits
allowed under subparts A, B, D, and G of part IV
of subchapter A of chapter 1 of the Code, is $648.
Therefore, the refunded portion of the section 23
credit is $4,472. This amount, which is the Federal
public benefit, is calculated by subtracting $648 from
$5,120. If E is an alien who is not a qualified alien, E
is not eligible to receive the Federal public benefit of
$4,472 as a refund, have it credited against the tax-
payer’s unpaid tax liabilities, or have it offset against
specified non-tax liabilities.
(7) Example 7: Determining the Federal public
benefit when the taxpayer claims multiple individ-
ual refundable income tax credits. Taxpayer F meets
the section 23 requirements for a $6,120 adoption
credit and the section 32 requirements for a $1,054
earned income credit. The refundable amount of the
section 23 credit, determined under section 23(a)
(4), is $5,120. F claims no other individual refund-
able income tax credits. F’s subtitle A tax liability,
reduced by the credits allowed under subparts A,
B, D, and G of part IV of subchapter A of chapter
1 of the Code, is $648. The sum of F’s refundable
tax credits claimed under subpart C of part IV of
subchapter A of chapter 1 of the Code and subject
to PRWORA is $6,174. The excess of $6,174 over
$648, which is $5,526, includes the refunded portion
of both the section 23 credit and the section 32 credit
and is the Federal public benefit. If F is an alien who
is not a qualified alien, F is not eligible to receive the
Federal public benefit of $5,526 as a refund, have it
credited against the taxpayer’s unpaid tax liabilities,
or have it offset against specified non-tax liabilities.
(8) Example 8: Determining the Federal Pub-
lic Benefit when the taxpayer claims an individual
refundable income tax credit subject to PRWORA
and a refundable income tax credit not subject to
PRWORA. Taxpayer G meets the section 23 require-
ments for a $6,120 adoption credit. The refundable
amount of this credit, determined under section 23(a)
(4), is $5,120. G also has $250 of tax withheld from
wages during the taxable year and is allowed, under
section 31, a credit against subtitle A tax equal to that
amount. The section 31 credit is an allowable refund-
able tax credit under subpart C of part IV of subchap-
ter A of chapter 1 of the Code and is not subject to
PRWORA. G claims no other individual refundable
tax credits. G’s subtitle A tax liability, reduced by the
credits allowed under subparts A, B, D, and G of part
IV of subchapter A of chapter 1 of the Code, is $648.
Therefore, the refunded portion of the section 23
credit is $4,472. This amount, which is the Federal
public benefit, is calculated by subtracting $648 from

September 14, 2026 368 Bulletin No. 2026–38
$5,120. The $250 withholding credit is not included
in the calculation of a Federal public benefit and can
be received as a refund, credited against the taxpay-
er’s unpaid tax liabilities, or offset against specified
non-tax liabilities. If G is an alien who is not a qual-
ified alien, G is not eligible to receive the Federal
public benefit of $4,472 as a refund, have it credited
against the taxpayer’s unpaid tax liabilities, or have it
offset against specified non-tax liabilities.
(g) Applicability date. This section
applies to taxable years ending on or after
[insert date of publication of the final reg-
ulations in the Federal Register].
Par. 3. Sections 1.24-2 and 1.24-3 are
added to read as follows:
§1.24-2 [Reserved]
§1.24-3 Application of the Personal
Responsibility and Work Opportunity
Reconciliation Act of 1996.
(a) In general. Section 24 of the Inter-
nal Revenue Code (Code) allows eligible
individuals a credit of an amount deter-
mined under section 24 (section 24 credit)
against the tax imposed by subtitle A of
the Code for the taxable year. This section
applies Title IV of PRWORA with respect
to the refunded portion of the section 24
credit. See 8 U.S.C. 1611(a), (c)(1).
(b) Definitions. For the definition of
terms used for purposes of this section,
see §1.32-4(b).
(c) Refunded portion of the section 24
credit—(1) In general. The refunded por-
tion of the section 24 credit is the portion
of the section 24 credit determined under
section 24(d) that exceeds the tax imposed
on the taxpayer by subtitle A of the Code
(reduced by credits allowable under sub-
parts A, B, D, and G of part IV of subchap-
ter A of chapter 1 of the Code).
(2) Multiple individual refundable
income tax credits claimed. In the event
the taxpayer has also claimed a refundable
credit under sections 23, 25A, or 32 of the
Code, or another individual refundable
income tax credit for which the refunded
portion is specified by the Secretary in
regulations as subject to PRWORA, the
taxpayer must first sum all such refund-
able credits claimed and then calculate
the portion of the sum of these credits that
exceeds the tax imposed on the taxpayer
by subtitle A of the Code (reduced by
credits allowable under subparts A, B, D,
and G of part IV of subchapter A of chap-
ter 1 of the Code). The refunded portion
of the section 24 credit is included within
this portion.
(d) Federal public benefit as applied
to section 24. The refunded portion of the
section 24 credit is a Federal public ben-
efit. A taxpayer who satisfies the require-
ments of section 24 is eligible to receive
the refunded portion of the section 24
credit, have it credited against the tax-
payer’s unpaid tax liabilities, or have it
offset against specified non-tax liabilities,
only if the taxpayer is a U.S. citizen, U.S.
national, or qualified alien and so declares
under penalty of perjury (on the appropri-
ate Federal income tax return, amended
tax return, or schedule as required by the
IRS).
(e) Determination for eligibility of
refunded portion of section 24 credit. For
purposes of receiving the refunded portion
of the section 24 credit, having it credited
against the taxpayer’s unpaid tax liabili-
ties, or having it offset against specified
non-tax liabilities, a taxpayer’s status as
a U.S. citizen, U.S. national, or qualified
alien is determined on the date the tax-
payer files the taxpayer’s return for the
taxable year that first claims the section
24 credit (without regard to whether the
return is deemed by the Code to be filed
on another date).
(f) Examples. The following examples
illustrate the rules of this section. In each
example, the taxpayer meets the require-
ments under title 26 to claim the section
24 credit for the taxable year:
(1) Example 1: Timely-filed return claiming the
tax credit. The due date of taxpayer A’s return is
April 15. A files A’s return for the taxable year on
April 15, claiming the section 24 credit (for one or
more qualifying children). On April 15, A is a U.S.
citizen, U.S. national, or qualified alien. Because A
is a U.S. citizen, U.S. national, or qualified alien on
the date A files A’s return claiming the section 24
credit for the taxable year, A is eligible to receive
the refunded portion of the section 24 credit, have it
credited against A’s unpaid tax liabilities, or have it
offset against A’s specified non-tax liabilities.
(2) Example 2: Claiming the tax credit on an
early return. The due date of taxpayer B’s return is
April 15. B files B’s return on February 1, claiming
the section 24 credit (for one or more qualifying
children). On February 1, B was a U.S. citizen, U.S.
national, or qualified alien. Accordingly, B is eligi-
ble to receive the refunded portion of the section 24
credit, have it credited against B’s unpaid tax liabil-
ities, or have it offset against B’s specified non-tax
liabilities.
(3) Example 3: Claiming the tax credit on a
late return. The due date of taxpayer C’s return is
April 15. C does not file Form 4868, Application for
Automatic Extension of Time to File U.S. Individual
Income Tax Return, for the taxable year. On Novem-
ber 1, within the period of limitations prescribed in
section 6511 of the Code on filing a claim for refund,
C files C’s return claiming the section 24 credit (for
one or more qualifying children). On November 1,
C is a U.S. citizen, U.S. national, or qualified alien.
Accordingly, C is eligible to receive the refunded
portion of the section 24 credit, have it credited
against C’s unpaid tax liabilities, or have it offset
against C’s specified non-tax liabilities.
(4) Example 4: Claiming the tax credit on an
amended return after a status change. The due date
of taxpayer D’s return is April 15. D files D’s return
for the taxable year on April 15, claiming the section
24 credit. However, on April 15, D is not a U.S. cit-
izen, U.S. national, or qualified alien. Accordingly,
D is not eligible to receive the refunded portion of
the section 24 credit, or to have it credited against
D’s unpaid tax liabilities or have it offset against
D’s specified non-tax liabilities. On December 1, D
becomes a U.S. citizen, U.S. national, or qualified
alien. On December 15, within the period of lim-
itation prescribed in section 6511 on filing a claim
for refund, D files an amended return for the taxable
year, updating D’s status under PRWORA. Although
D is a U.S. citizen, U.S. national, or qualified alien
on December 15, D was not a U.S. citizen, U.S.
national, or qualified alien when D first claimed the
section 24 credit, so D is not eligible to receive the
refunded portion of the section 24 credit.
(5) Example 5: Claiming the tax credit for
the first time on an amended return after a status
change. Same facts as paragraph (f)(4) of this section
(Example 4), except that D did not initially claim the
section 24 credit when D filed on April 15 and rather
claimed this credit for the first time on an amended
return filed on December 15. Since D is a U.S. cit-
izen, U.S. national, or qualified alien on December
15 when D first claimed the section 24 credit, D is
eligible to receive the refunded portion of the section
24 credit.
(6) Example 6: Determining the Federal Pub-
lic Benefit when the taxpayer claims the section 24
credit and no other refundable tax credits. Taxpayer
E meets the section 24 requirements for a $2,200
child tax credit. The refundable amount of this credit,
determined under section 24(d), is $955. E claims no
other individual refundable tax credits. E’s subtitle
A tax liability, reduced by the credits allowed under
subparts A, B, D, and G of part IV of subchapter
A of chapter 1 of the Code, is $706. Therefore, the
refunded portion of the section 24(d) credit is $249.
This amount, which is the Federal public benefit, is
calculated by subtracting $706 from $955. If E is an
alien who is not a qualified alien, E is not eligible
to receive the Federal public benefit of $249 as a
refund, have it credited against the taxpayer’s unpaid
tax liabilities, or have it offset against specified non-
tax liabilities.
(7) Example 7: Determining the Federal public
benefit when the taxpayer claims multiple individual
refundable income tax credits. Taxpayer F meets the
section 24 requirements for a $2,200 child tax credit
and the section 32 requirements for a $2,272 earned
income credit. The refundable amount of the section
24 credit, determined under section 24(d), is $955. F

Bulletin No. 2026–38 369 September 14, 2026
claims no other individual refundable tax credits. F’s
subtitle A tax liability, reduced by the credits allowed
under subparts A, B, D, and G of part IV of subchap-
ter A of chapter 1 of the Code, is $706. The sum of
F’s refundable tax credits claimed under subpart C of
part IV of subchapter A of chapter 1 of the Code and
subject to PRWORA is $3,227. The excess of $3,227
over $706, which is $2,521, includes the refunded
portion of both the section 24(d) credit and the sec-
tion 32 credit and is the Federal public benefit. If F is
an alien who is not a qualified alien, F is not eligible
to receive the Federal public benefit of $2,521 as a
refund, have it credited against the taxpayer’s unpaid
tax liabilities, or have it offset against specified non-
tax liabilities.
(8) Example 8: Determining the Federal Pub-
lic Benefit when the taxpayer claims an individual
refundable income tax credit subject to PRWORA
and a refundable income tax credit not subject to
PRWORA. Taxpayer G meets the section 24 require-
ments for a $2,200 child tax credit. The refundable
amount of this credit, determined under section
24(d), is $955. G also has $250 of tax withheld from
wages during the taxable year and is allowed, under
section 31, a credit against subtitle A tax equal to that
amount. The section 31 credit is an allowable refund-
able tax credit under subpart C of part IV of subchap-
ter A of chapter 1 of the Code and is not subject to
PRWORA. G claims no other individual refundable
tax credits. G’s subtitle A tax liability, reduced by
the credits allowed under subparts A, B, D, and G of
part IV of subchapter A of chapter 1 of the Code, is
$706. Therefore, the refunded portion of the section
24 credit is $249. This amount, which is the Federal
public benefit, is calculated by subtracting $706 from
$955. The $250 withholding credit is not included in
the calculation of a Federal public benefit and can be
received as a refund, credited against the taxpayer’s
unpaid tax liabilities, or offset against specified non-
tax liabilities. If G is an alien who is not a qualified
alien, G is not eligible to receive the Federal public
benefit of $249 as a refund, have it credited against
the taxpayer’s unpaid tax liabilities, or have it offset
against specified non-tax liabilities.
(g) Applicability date. This section
applies to taxable years ending on or after
[insert date of publication of the final reg-
ulations in the Federal Register].
Par. 4. Sections 1.25A-6 and 1.25A-7
are added to read as follows:
§1.25A-6 [Reserved]
§1.25A-7 Application of the Personal
Responsibility and Work Opportunity
Reconciliation Act of 1996.
(a) In general. Section 25A(a)(1) of
the Internal Revenue Code (Code) allows
eligible individuals a credit of an amount
determined under section 25A(b) and (i)
(section 25A(a)(1) credit) against the tax
imposed by subtitle A of the Code for the
taxable year. This section applies Title IV
of PRWORA with respect to the refunded
portion of the section 25A(a)(1) credit.
See 8 U.S.C. 1611(a), (c)(1).
(b) Definitions. For the definition of
terms used for purposes of this section,
see §1.32-4(b).
(c) Refunded portion of the section
25A(a)(1) credit—(1) In general. The
refunded portion of the section 25A(a)(1)
credit is the portion of the section 25A(a)
(1) credit determined under section 25A(i)
that exceeds the tax imposed on the tax-
payer by subtitle A of the Code (reduced
by credits allowable under subparts A, B,
D, and G of part IV of subchapter A of
chapter 1 of the Code).
(2) Multiple individual refundable
income tax credits claimed. In the event
the taxpayer has also claimed a refundable
credit under sections 23, 24, or 32 of the
Code, or another individual refundable
income tax credit for which the refunded
portion is specified by the Secretary in
regulations as subject to PRWORA, the
taxpayer must first sum all such refund-
able credits claimed, and then calculate
the portion of the sum of these credits that
exceeds the tax imposed on the taxpayer
by subtitle A of the Code (reduced by
credits allowable under subparts A, B, D,
and G of part IV of subchapter A of chap-
ter 1 of the Code). The refunded portion
of the section 25A(a)(1) credit is included
within this portion.
(d) Federal public benefit as applied
to section 25A(a)(1). The refunded por-
tion of the taxpayer’s section 25A(a)(1)
credit is a Federal public benefit. A tax-
payer who satisfies the requirements of
section 25A(a)(1) is eligible to receive
the refunded portion of the section 25A(a)
(1) credit, have it credited against the tax-
payer’s unpaid tax liabilities, or have it
offset against specified non-tax liabilities,
only if the taxpayer is a U.S. citizen, U.S.
national, or qualified alien and so declares
under penalty of perjury (on the appropri-
ate Federal income tax return, amended
tax return, or schedule as required by the
IRS).
(e) Determination for eligibility of
refunded portion of section 25A(a)(1)
credit. For purposes of receiving the
refunded portion of the section 25A(a)(1)
credit, having it credited against the tax-
payer’s unpaid tax liabilities, or having it
offset against specified non-tax liabilities,
a taxpayer’s status as a U.S. citizen, U.S.
national, or qualified alien is determined
on the date the taxpayer files the taxpay-
er’s return for the taxable year that first
claims the section 25A(a)(1) credit (with-
out regard to whether the return is deemed
by the Code to be filed on another date).
(f) Examples. The following examples
illustrate the rules of this section. In each
example below, the taxpayer meets the
requirements under title 26 to claim the
section 25A(a)(1) credit for the taxable
year:
(1) Example 1: Timely-filed return claiming the
tax credit. The due date of taxpayer A’s return is
April 15. A files A’s return for the taxable year on
April 15, claiming the section 25A(a)(1) credit. On
April 15, A is a qualified alien within the meaning
of 8 U.S.C. 1611(a). Because A was a U.S. citizen,
U.S. national, or qualified alien on the date A files
A’s return claiming the section 25A(a)(1) credit for
the taxable year, A is eligible to receive the refunded
portion of the section 25A(a)(1) credit, have it cred-
ited against A’s unpaid tax liabilities, or have it offset
against A’s specified non-tax liabilities.
(2) Example 2: Claiming the tax credit on an
early return. The due date of taxpayer B’s return is
April 15. B files B’s return on February 1, claim-
ing the section 25A(a)(1) credit. On February 1, B
is a U.S. citizen, U.S. national, or qualified alien.
Accordingly, B is eligible to receive the refunded
portion of the section 25A(a)(1) credit, have it cred-
ited against B’s unpaid tax liabilities, or have it offset
against B’s specified non-tax liabilities.
(3) Example 3: Claiming the tax credit on a
late return. The due date of taxpayer C’s return is
April 15. C does not file Form 4868, Application for
Automatic Extension of Time to File U.S. Individual
Income Tax Return, for the taxable year. On Novem-
ber 1, within the period of limitations prescribed in
section 6511 of the Code on filing a claim for refund,
C files C’s return claiming the section 25A(a)(1)
credit. On November 1, C is a U.S. citizen, U.S.
national, or qualified alien. Accordingly, C is eligible
to receive the refunded portion of the section 25A(a)
(1) credit, to have it credited against C’s unpaid tax
liabilities, or have it offset against C’s specified non-
tax liabilities.
(4) Example 4: Claiming the tax credit on an
amended return after a status change. The due
date of taxpayer D’s return is April 15. D files D’s
return for the taxable year on April 15 claiming the
section 25A(a)(1) credit. However, on April 15,
D is not a U.S. citizen, U.S. national, or qualified
alien. Accordingly, D is not eligible to receive the
refunded portion of the section 25A(a)(1) credit, or
to have it credited against D’s unpaid tax liabilities
or have it offset against D’s specified non-tax lia-
bilities. On December 1, D becomes a U.S. citizen,
U.S. national, or qualified alien. On December 15,
within the period of limitation prescribed in section
6511 on filing a claim for refund, D files an amended
return for the taxable year, updating D’s status
under PRWORA. Although D is a U.S. citizen, U.S.
national, or qualified alien on December 15, D was
not a U.S. citizen, U.S. national, or qualified alien

September 14, 2026 370 Bulletin No. 2026–38
when D first claimed the section 25A(a)(1) credit, so
D is not eligible to receive the refunded portion of
the section 25A(a)(1) credit.
(5) Example 5: Claiming the tax credit for
the first time on an amended return after a status
change. Same facts as paragraph (f)(4) of this sec-
tion (Example 4), except that D did not initially claim
the section 25A(a)(1) credit when D filed on April
15 and rather claimed this credit for the first time
on an amended return filed on December 15. Since
D is a U.S. citizen, U.S. national, or qualified alien
on December 15 when D first claimed the section
25A(a)(1) credit, D is eligible to receive the refunded
portion of the section 25A(a)(1) credit.
(6) Example 6: Determining the Federal Public
Benefit when the taxpayer claims the section 25A(a)
(1) credit and no other refundable tax credits. Tax-
payer E meets the section 25A(a)(1) requirements
for a $2,500 American Opportunity Tax Credit. The
refundable amount of this credit, determined under
section 25A(i), is $1,000. E claims no other individ-
ual refundable tax credits. E’s subtitle A tax liability,
reduced by the credits allowed under subparts A, B,
D, and G of part IV of subchapter A of chapter 1 of
the Code, is $148. Therefore, the refunded portion of
the section 25A(a)(1) credit is $852. This amount,
which is the Federal public benefit, is calculated by
subtracting $148 from $1,000. If E is an alien who is
not a qualified alien, E is not eligible to receive the
Federal public benefit of $852 as a refund, have it
credited against the taxpayer’s unpaid tax liabilities,
or have it offset against specified non-tax liabilities.
(7) Example 7: Determining the Federal public
benefit when the taxpayer claims multiple individual
refundable income tax credits. Taxpayer F meets the
section 25A(a)(1) requirements for a $2,500 Amer-
ican Opportunity Tax Credit and the section 32
requirements for a $1,110 earned income credit. The
refundable amount of the section 25A(a)(1) credit,
determined under section 25A(i), is $1,000. F claims
no other individual refundable tax credits. F’s sub-
title A tax liability, reduced by the credits allowed
under subparts A, B, D, and G of part IV of subchap-
ter A of chapter 1 of the Code, is $812. The sum of
F’s refundable tax credits claimed under subpart C of
part IV of subchapter A of chapter 1 of the Code and
subject to PRWORA is $2,110. The excess of $2,110
over $812, which is $1,298, includes the refunded
portion of both the section 25A(a)(1) credit and the
section 32 credit and is the Federal public benefit. If
F is an alien who is not a qualified alien, F is not eli-
gible to receive the Federal public benefit of $1,298
as a refund, have it credited against the taxpayer’s
unpaid tax liabilities, or have it offset against speci-
fied non-tax liabilities.
(8) Example 8: Determining the Federal Pub-
lic Benefit when the taxpayer claims an individual
refundable income tax credit subject to PRWORA
and a refundable income tax credit not subject to
PRWORA. Taxpayer G meets the section 25A(a)(1)
requirements for a $2,500 American Opportunity
Tax Credit. The refundable amount of this credit,
determined under section 25A(i), is $1,000. G also
has $250 of tax withheld from wages during the tax-
able year and is allowed, under section 31, a credit
against subtitle A tax equal to that amount. The sec-
tion 31 credit is an allowable refundable tax credit
under subpart C of part IV of subchapter A of chap-
ter 1 of the Code and is not subject to PRWORA. G
claims no other individual refundable tax credits. G’s
subtitle A tax liability, reduced by the credits allowed
under subparts A, B, D, and G of part IV of subchap-
ter A of chapter 1 of the Code, is $148. Therefore, the
refunded portion of the section 25A(a)(1) credit is
$852. This amount, which is the Federal public ben-
efit, is calculated by subtracting $148 from $1,000.
The $250 withholding credit is not included in the
calculation of a Federal public benefit and can be
received as a refund, credited against the taxpayer’s
unpaid tax liabilities, or offset against specified non-
tax liabilities. If G is an alien who is not a qualified
alien, G is not eligible to receive the Federal public
benefit of $852 as a refund, have it credited against
the taxpayer’s unpaid tax liabilities, or have it offset
against specified non-tax liabilities.
(g) Applicability date. This section
applies to taxable years ending on or after
[insert date of publication of the final reg-
ulations in the Federal Register].
Par. 5. Sections 1.32-1 and 1.32-4 are
added to read as follows:
§§1.32-1 [Reserved]
§1.32-4 Application of the Personal
Responsibility and Work Opportunity
Reconciliation Act of 1996.
(a) In general. Section 32 of the Inter-
nal Revenue Code (Code) allows eligible
individuals a credit of an amount deter-
mined under section 32 (section 32 credit)
against the tax imposed by subtitle A of
the Code for the taxable year. This section
applies Title IV of PRWORA with respect
to the refunded portion of the section 32
credit. See 8 U.S.C. 1611(a), (c)(1).
(b) Definitions. The following defini-
tions apply for purposes of this section:
(1) Alien. The term alien has the same
meaning as provided in section 101(a)
of the Immigration and Nationality Act,
Public Law 82-414, 66 Stat. 163, 8 U.S.C.
1101(a)(3).
(2) Federal public benefit. The term
Federal public benefit has the same
meaning as provided in section 401 of
PRWORA, 8 U.S.C. 1611(c).
(3) PRWORA. The term PRWORA
means the Personal Responsibility and
Work Opportunity Reconciliation Act
of 1996, Public Law 104-193, 110 Stat.
2105, 2260-77, as amended.
(4) Qualified alien. The term qualified
alien has the same meaning as provided
in section 431 of PRWORA, 8 U.S.C.
1641(b). In case of married individuals fil-
ing a joint return, if one spouse is a U.S.
citizen, U.S. national, or qualified alien,
then the other spouse will be treated as a
qualified alien for this purpose.
(5) U.S. National. The term U.S.
national has the same meaning as provided
the term national of the United States in
section 101(a) of the Immigration and
Nationality Act, Public Law 82-414, 66
Stat. 163, 8 U.S.C. 1101(a)(22).
(c) Refunded portion of the section 32
credit—(1) In general. The refunded por-
tion of the section 32 credit is the portion
of the section 32 credit that exceeds the
tax imposed on the taxpayer by subtitle A
of the Code (reduced by credits allowable
under subparts A, B, D, and G of part IV
of subchapter A of chapter 1 of the Code).
(2) Multiple individual refundable
income tax credits claimed. In the event
the taxpayer has also claimed a refundable
credit under sections 23, 24, or 25A of the
Code, or another refundable income tax
credit for which the refunded portion is
specified by the Secretary in regulations
as subject to PRWORA, the taxpayer
must first sum all such refundable credits
claimed, and then calculate the portion of
the sum of these credits that exceeds the
tax imposed on the taxpayer by subtitle A
of the Code (reduced by credits allowable
under subparts A, B, D, and G of part IV
of subchapter A of chapter 1 of the Code).
The refunded portion of the section 32
credit is included within this portion.
(d) Federal public benefit as applied
to section 32. The refunded portion of the
taxpayer’s section 32 credit is a Federal
public benefit. A taxpayer who satisfies
the requirements of section 32 is eligible
to receive the refunded portion of the sec-
tion 32 credit, have it credited against the
taxpayer’s unpaid tax liabilities, or have it
offset against specified non-tax liabilities,
only if the taxpayer is a U.S. citizen, U.S.
national, or qualified alien and so declares
under penalty of perjury (on the appropri-
ate Federal income tax return, amended
tax return, or schedule as required by the
IRS).
(e) Determination for eligibility of the
refunded portion of section 32 credit. For
purposes of receiving the refunded portion
of the section 32 credit, having it credited
against the taxpayer’s unpaid tax liabili-
ties, or having it offset against specified
non-tax liabilities, a taxpayer’s status as
a U.S. citizen, U.S. national, or qualified

Bulletin No. 2026–38 371 September 14, 2026
alien is determined on the date the tax-
payer files the taxpayer’s return for the
taxable year that first claims the section
32 credit (without regard to whether the
return is deemed by the Code to be filed
on another date).
(f) Examples. The following examples
illustrate the rules of this section. In each
example below, the taxpayer meets the
requirements under the Code to claim the
section 32 credit for the taxable year:
(1) Example 1: Timely-filed return claiming the
tax credit. The due date of taxpayer A’s return is
April 15. A files A’s return for the taxable year on
April 15, claiming the section 32 credit. On April 15,
A is a U.S. citizen, U.S. national, or qualified alien.
Because A was a U.S. citizen, U.S. national, or quali-
fied alien on the date of A files A’s return claiming the
section 32 credit for the taxable year, A is eligible to
receive the refunded portion of the section 32 credit,
have it credited against A’s unpaid tax liabilities, or
have it offset against A’s specified non-tax liabilities.
(2) Example 2: Claiming the tax credit on an
early return. The due date of taxpayer B’s return is
April 15. B files B’s return on February 1, claiming
the section 32 credit. On February 1, B is a U.S. cit-
izen, U.S. national, or qualified alien. Accordingly,
B is eligible to receive the refunded portion of the
section 32 credit, have it credited against B’s unpaid
tax liabilities, or have it offset against B’s specified
non-tax liabilities.
(3) Example 3: Claiming the tax credit on a
late return. The due date of taxpayer C’s return is
April 15. C does not file Form 4868, Application for
Automatic Extension of Time to File U.S. Individual
Income Tax Return, for the taxable year. On Novem-
ber 1, within the period of limitations prescribed in
section 6511 of the Code on filing a claim for refund,
C files C’s return claiming the section 32 credit. On
November 1, C is a U.S. citizen, U.S. national, or
qualified alien. Accordingly, C is eligible to receive
the refunded portion of the section 32 credit, to have
it credited against C’s unpaid tax liabilities, or have it
offset against C’s specified non-tax liabilities.
(4) Example 4: Claiming the tax credit on an
amended return after a status change. The due date
of taxpayer D’s return is April 15. D files D’s return
for the taxable year on April 15, claiming the section
32 credit. However, on April 15, D is not U.S. citi-
zen, U.S. national, or a qualified alien. Accordingly,
D is not eligible to receive the refunded portion of
the section 32 credit, or to have it credited against
D’s unpaid tax liabilities or have it offset against
D’s specified non-tax liabilities. On December 1, D
becomes a U.S. citizen, U.S. national, or qualified
alien. On December 15, within the period of lim-
itation prescribed in section 6511 on filing a claim
for refund, D files an amended return for the taxable
year, updating D’s status under PRWORA. Although
D is a U.S. citizen, U.S. national, or qualified alien
on December 15, D was not a U.S. citizen, U.S.
national, or qualified alien when D first claimed the
section 32 credit, so D is not eligible to receive the
refunded portion of the section 32 credit.
(5) Example 5: Claiming the tax credit for
the first time on an amended return after a status
change. Same facts as paragraph (f)(4) of this section
(Example 4), except that D did not initially claim the
section 32 credit when D filed on April 15 and rather
claimed this credit for the first time on an amended
return filed on December 15. Since D is a U.S. cit-
izen, U.S. national, or qualified alien on December
15 when D first claimed the section 32 credit, D is
eligible to receive the refunded portion of the section
32 credit.
(6) Example 6: Determining the Federal Pub-
lic Benefit when the taxpayer claims the section 32
credit and no other refundable tax credits. Taxpayer
E meets the section 32 requirements for a $2,272
earned income credit. E claims no other individual
refundable tax credits. E’s subtitle A tax liability,
reduced by the credits allowed under subparts A, B,
D, and G of part IV of subchapter A of chapter 1 of
the Code, is $1,451. Therefore, the refunded portion
of the section 32 credit is $821. This amount, which
is the Federal public benefit, is calculated by sub-
tracting $1,451 from $2,272. If E is an alien who is
not a qualified alien, E is not eligible to receive the
Federal public benefit of $821 as a refund, have it
credited against the taxpayer’s unpaid tax liabilities,
or have it offset against specified non-tax liabilities.
(7) Example 7: Determining the Federal public
benefit when the taxpayer claims multiple individual
refundable income tax credits. Taxpayer F meets the
section 32 requirements for a $2,272 earned income
credit and the section 24 requirements for a $2,200
child tax credit. The refundable amount of the sec-
tion 24 credit, determined under section 24(d), is
$1,455. F claims no other individual refundable tax
credits. F’s subtitle A tax liability, reduced by the
credits allowed under subparts A, B, D, and G of
part IV of subchapter A of chapter 1 of the Code, is
$706. The sum of F’s refundable tax credits claimed
under subpart C of part IV of subchapter A of chapter
1 of the Code and subject to PRWORA is $3,727.
The excess of $3,727 over $706, which is $3,021,
includes the refunded portion of both the section 32
credit and the section 24 credit and is the Federal
public benefit. If F is an alien who is not a qualified
alien, F is not eligible to receive the Federal public
benefit of $3,021 as a refund, have it credited against
the taxpayer’s unpaid tax liabilities, or have it offset
against specified non-tax liabilities.
(8) Example 8: Determining the Federal Pub-
lic Benefit when the taxpayer claims an individual
refundable income tax credit subject to PRWORA
and a refundable income tax credit not subject to
PRWORA. Taxpayer G meets the section 32 require-
ments for a $2,272 earned income credit. G also has
$250 of tax withheld from wages during the taxable
year and is allowed, under section 31, a credit against
subtitle A tax equal to that amount. The section 31
credit is an allowable refundable tax credit under
subpart C of part IV of subchapter A of chapter 1 of
the Code and is not subject to PRWORA. G claims
no other individual refundable tax credits. G’s sub-
title A tax liability, reduced by the credits allowed
under subparts A, B, D, and G of part IV of subchap-
ter A of chapter 1 of the Code, is $1,451. Therefore,
the refunded portion of the section 32 credit is $821.
This amount, which is the Federal public benefit, is
calculated by subtracting $1,451 from $2,272. The
$250 withholding credit is not included in the calcu-
lation of a Federal public benefit and can be received
as a refund, credited against the taxpayer’s unpaid
tax liabilities, or offset against specified non-tax lia-
bilities. If G is an alien who is not a qualified alien,
G is not eligible to receive the Federal public benefit
of $821 as a refund, have it credited against the tax-
payer’s unpaid tax liabilities, or have it offset against
specified non-tax liabilities.
(g) Applicability date. This section
applies to taxable years ending on or after
[insert date of publication of the final reg-
ulations in the Federal Register].
Frank J. Bisignano,
Chief Executive Officer.
(Filed by the Office of the Federal Register August
19, 2026, 8:45 a.m., and published in the issue of the
Federal Register for August 20, 2026, 91 FR 53812)

Bulletin No. 2026–38 i September 14, 2026
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
applied to A, and the new ruling holds that
the same principle also applies to B, the
earlier ruling is amplified. (Compare with
modified, below).
Clarified is used in those instances
where the language in a prior ruling is
being made clear because the language
has caused, or may cause, some confu-
sion. It is not used where a position in a
prior ruling 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 previously
published ruling in a new ruling that is
self contained. In this case, the previously
published ruling is first modified and then,
as modified, is superseded.
Supplemented is used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names
in subsequent rulings. After the original
ruling has been supplemented several
times, a new ruling may be published that
includes the list in the original ruling and
the additions, and supersedes all prior rul-
ings in the series.
Suspended is used in rare situations
to show that the previous published rul-
ings will not be applied pending some
future action such as the issuance of new
or amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.
Abbreviations
The following abbreviations in current
use and formerly used will appear in
material published in the Bulletin.
A—Individual.
Acq.—Acquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Cooperative.
Ct.D.
—Court Decision.
CY—County.
D—Decedent.
DC—Dummy Corporation.
DE—Donee.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Employer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduciary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor.
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Transferee.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpayer.
TR—Trust.
TT—Trustee.
U.S.C.—United States Code.
X—Corporation.
Y—Corporation.
Z—Corporation.

September 14, 2026 ii Bulletin No. 2026–38
Numerical Finding List
1
Bulletin 2026–38
Announcements:
2026-11, 2026-29 I.R.B. 49
2026-12, 2026-29 I.R.B. 50
2026-13, 2026-32 I.R.B. 173
2026-14, 2026-34 I.R.B. 180
2026-15, 2026-35 I.R.B. 214
Notices:
2026-39, 2026-27 I.R.B. 1
2026-38, 2026-28 I.R.B. 30
2026-40, 2026-28 I.R.B. 33
2026-41, 2026-29 I.R.B. 39
2026-42, 2026-29 I.R.B. 41
2026-43, 2026-29 I.R.B. 42
2026-21, 2026-30 I.R.B. 51
2026-44, 2026-32 I.R.B. 143
2026-28, 2026-34 I.R.B. 177
2026-46, 2026-35 I.R.B. 182
2026-48, 2026-35 I.R.B. 185
2026-49, 2026-35 I.R.B. 198
2026-50, 2026-36 I.R.B. 242
2026-51, 2026-38 I.R.B. 314
Proposed Regulations:
REG-101355-26, 2026-37 I.R.B. 249
REG-103844-26, 2026-37 I.R.B. 275
REG-115145-25, 2026-37 I.R.B. 298
CC-00349938-26, 2026-38 I.R.B. 317
REG-107855-25, 2026-38 I.R.B. 333
REG-117130-25, 2026-38 I.R.B. 343
REG-119882-25, 2026-38 I.R.B. 355
Revenue Procedures:
2026-25, 2026-29 I.R.B. 45
2026-18, 2026-30 I.R.B. 53
2026-26, 2026-31 I.R.B. 131
2026-32, 2026-32 I.R.B. 146
2026-28, 2026-33 I.R.B. 175
2026-30, 2026-35 I.R.B. 212
Revenue Rulings:
2026-12, 2026-28 I.R.B. 27
2026-13, 2026-32 I.R.B. 132
2026-14, 2026-35 I.R.B. 181
2026-15, 2026-36 I.R.B. 216
2026-16, 2026-36 I.R.B. 237
2026-17, 2026-37 I.R.B. 247
Treasury Decisions:
10051, 2026-31 I.R.B. 118
10052, 2026-31 I.R.B. 121
10050, 2026-32 I.R.B. 134
10053, 2026-36 I.R.B. 237
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2026–27 through 2026–52 is in Internal Revenue Bulletin
2025–52, dated December 21, 2025.

Bulletin No. 2026–38 iii September 14, 2026
Finding List of Current Actions on
Previously Published Items
1
Bulletin 2026–38
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2026–27 through 2026–52 is in Internal Revenue Bulletin
2025–52, dated December 21, 2025.

Internal Revenue Service
Washington, DC 20224
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