Internal Revenue Bulletin 2020-2 (PDF rendition): IRS Revenue Procedures

Preserve advance releases and the authoritative Internal Revenue Bulletin rendition; directory timestamps are file-publication metadata, not legal effective dates. HTML bulletins begin June 2003; earlier available issues require full PDF parsing. Whole bulletin rendition: numbered items are identified below; other legal material and publisher context remain included. This is not a new standalone advance release.

Bulletin No. 2020–2
January 6, 2020
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
EMPLOYEE PLANS
NOTICE 2020-1, page 290.
This notice sets forth updates on the corporate bond month-
ly yield curve, the corresponding spot segment rates for
December 2019 used under § 417(e)(3)(D), the 24-month
average segment rates applicable for December 2019, and
the 30-year Treasury rates, as reflected by the application
of § 430(h)(2)(C)(iv).
REV. PROC. 2020-9, page 294.
This revenue procedure clarifies which amendments are
treated as integral to a plan provision that fails to satisfy
the qualification requirements of the Internal Revenue Code
by reason of a change to those requirements made by the
recently published regulations under §§ 401(k) and 401(m)
relating to hardship distributions of elective deferrals. This
revenue procedure also extends the deadline, applicable to
pre-approved plans, for adopting an interim amendment re-
lating to those regulations.
REV. PROC. 2020-10, page 295.
Rev. Proc. 2017-41, 2017-29 I.R.B 92, sets forth proce-
dures for providers of pre-approved plans to obtain opin-
ion letters, once every six years, for qualified pre-approved
plans submitted with respect to the third (and subsequent)
six-year remedial amendment cycles. Defined benefit and
defined contribution pre-approved plans are under different
six-year remedial amendment cycles. This revenue proce-
dure provides that the third six-year remedial amendment
cycle for pre-approved defined benefit plans begins on May
1, 2020, and ends on January 31, 2025. It also provides
that the on-cycle submission period for providers to submit
opinion letter applications begins on August 1, 2020 and
ends on July 31, 2021.
EXEMPT ORGANIZATIONS
T.D. 9886, page 285.
This final regulation provides guidance under § 512(a)
(3) of the Code with regard to the calculation of un-
related business taxable income (UBTI) for § 501(c)
(9) voluntary employees’ beneficiary associations (VE-
BAs) and § 501(c)(17) supplemental unemployment
benefit trusts (SUBs). This regulation makes a few
changes to temporary regulations issued in 1986 to
clarify statutory provisions on how to calculate UBTI
for VEBAs and SUBs and generally follows proposed
regulations issued in 2014, with the exception of a
change to the applicability/effective date in response
to comments.
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 en-
force the law with integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing of-
ficial rulings and procedures of the Internal Revenue Service
and for publishing Treasury Decisions, Executive Orders, Tax
Conventions, legislation, court decisions, and other items of
general interest. It is published weekly.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless other-
wise indicated. Procedures relating solely to matters of inter-
nal management are not published; however, statements of
internal practices and procedures that affect the rights and
duties of taxpayers are published.
Revenue rulings represent the conclusions of the Service
on the application of the law to the pivotal facts stated in
the revenue ruling. In those based on positions taken in rul-
ings to taxpayers or technical advice to Service field offices,
identifying details and information of a confidential nature are
deleted to prevent unwarranted invasions of privacy and to
comply with statutory requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions
of the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B,
Legislation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative
Rulings. Bank Secrecy Act Administrative Rulings are issued
by the Department of the Treasury’s Office of the Assistant
Secretary (Enforcement).
Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbar-
ment and suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
January 6, 2020 Bulletin No. 2020–2

Part I
26 CFR 1.512(a)-5: Questions and answers relating
to the unrelated business taxable income of organi-
zations described in paragraphs (9) or (17) of sec-
tion 501(c).
T.D. 9886
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1
Calculation of UBTI
for Certain Exempt
Organizations
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulation and removal of
temporary regulation.
SUMMARY: This document contains a fi-
nal regulation providing guidance on how
certain organizations that provide employ-
ee benefits must calculate unrelated busi-
ness taxable income (UBTI).
DATES: Effective Date: This regulation is
effective on December 10, 2019.
Applicability Date: This regulation ap-
plies to taxable years beginning on or af-
ter December 10, 2019. For rules that ap-
ply to earlier periods, see §1.512(a)-5T as
contained in 26 CFR part 1, revised April
1, 2019.
FOR FURTHER INFORMATION CON-
TACT: Jennifer Solomon or Janet Laufer
at (202) 317-5500 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains final Income
Tax Regulations (26 CFR part 1) under
section 512(a) of the Code. Organizations
that are otherwise exempt from tax under
section 501(a) are subject to tax on their
unrelated business taxable income (UBTI)
under section 511(a). Section 512(a) of the
Code generally defines UBTI of exempt
organizations and provides special rules
for calculating UBTI for organizations
described in section 501(c)(7) (social and
recreational clubs), voluntary employees’
beneficiary associations described in sec-
tion 501(c)(9) (VEBAs), and supplemen-
tal unemployment benefit trusts described
in section 501(c)(17) (SUBs).
Section 512(a)(1) provides a general
rule that UBTI is the gross income from
any unrelated trade or business regularly
carried on by the organization, less cer-
tain deductions. Under section 512(a)(3)
(A), in the case of social and recreational
clubs, VEBAs, and SUBs, UBTI is de-
fined as gross income, less directly con-
nected expenses, but excluding “exempt
function income.”
Exempt function income is defined in
section 512(a)(3)(B) as gross income from
two sources. The first type of exempt func-
tion income is amounts paid by members
as consideration for providing the members
or their dependents or guests with goods,
facilities, or services in furtherance of the
organization’s exempt purposes. The sec-
ond type of exempt function income is
all income (other than an amount equal
to the gross income derived from any un-
related trade or business regularly carried
on by the organization computed as if the
organization were subject to section 512(a)
(1)) that is set aside: (1) for a charitable
purpose specified in section 170(c)(4); (2)
in the case of a VEBA or SUB, to provide
for the payment of life, sick, accident, or
other benefits; or (3) for reasonable costs
of administration directly connected with a
purpose described in (1) or (2).
As described in greater detail below,
section 512(a)(3)(E) generally limits the
amount that a VEBA or SUB may set
aside as exempt function income to an
amount that does not result in an amount
of total assets in the VEBA or SUB at the
end of the taxable year that exceeds the
section 419A account limit for the taxable
year. As specified in section 512(a)(3)(E)
(i), for this purpose, the account limit does
not take into account any reserve under
section 419A(c)(2)(A) for post-retirement
medical benefits.
Section 512(a)(3)(E) was added to the
Code under the Tax Reform Act of 1984,
Public Law 98-369 (98 Stat. 598 (1984)).
Congress enacted section 512(a)(3)(E)
to limit the extent to which a VEBA’s or
SUB’s income is exempt from tax, noting
that “[p]resent law does not specifically
limit the amount of income that can be set
aside” by a VEBA or SUB on a tax-free ba-
sis. H.R. Rep. No. 98-432, pt. 2, at 1275.
To implement section 512(a)(3)(E),
§1.512(a)-5T was published in the Fed-
eral Register as TD 8073 on February 4,
1986 (51 FR 4312), with an immediate ef-
fective date. A cross-referencing Notice of
Proposed Rulemaking (the 1986 proposed
regulation) was issued contemporaneous-
ly with the temporary regulation. Written
comments were received on the 1986 pro-
posed regulation, and a public hearing was
held on June 26, 1986. The 1986 proposed
regulation was withdrawn and replaced by
a new proposed regulation (the 2014 pro-
posed regulation) that was published in
the Federal Register on February 6, 2014
(79 FR 7110). The Treasury Department
and the IRS received two comments on
the 2014 proposed regulation. No public
hearing was held.
The Treasury Department and the IRS
have considered the comments received in
response to the 2014 proposed regulation.
This final regulation adopts the provisions
of the 2014 proposed regulation with no
modifications other than the following
changes: (1) a change in the applicabili-
ty date to taxable years beginning on or
after the date of publication of this final
regulation; (2) the addition of a clause
modifying the definition of covered en-
tity to include certain corporations de-
scribed in section 501(c)(2), as provided
in section 512(a)(3)(C); (3) the addition
of a clause which refers to the provision
in section 512(a)(3)(D) addressing non-
recognition of gain in the case of sales of
certain property; and (4) updates to the
examples, formatting changes, and other
minor changes in wording, which are non-
substantive. The modifications to the defi-
nition of covered entity and the addition
of the clause addressing nonrecognition
of gain are described under the heading
“Summary of Comments and Explanation
Bulletin No. 2020–2 285 January 6, 2020

of Provisions.” The temporary regulation
is removed.
Summary of Comments and
Explanation of Provisions
Covered Entity
Consistent with the 2014 proposed
regulation, this final regulation uses the
uniform term “Covered Entity” to de-
scribe VEBAs and SUBs subject to the
UBTI computation rules of section 512(a)
(3).
1
For taxable years beginning after
June 30, 1992, group legal services orga-
nizations (GLSOs) are no longer exempt
as section 501(c)(20) organizations.
2
See
section 120(e). Therefore, a GLSO is no
longer a Covered Entity.
The 2014 proposed regulation did not re-
flect the provision of section 512(a)(3)(C),
which provides that section 512(a)(3)(A)
applies to a corporation described in sec-
tion 501(c)(2), the income of which is
payable to an organization described in
section 501(c)(7), (9), or (17), as if the cor-
poration were the organization to which
the income is payable. For this purpose,
the corporation is treated as having exempt
function income for a taxable year only if
it files a consolidated return with the or-
ganization described in section 501(c)(7),
(9), or (17). In this final regulation, a
clause has been added to clarify that the
term “Covered Entity” includes a corpora-
tion described in section 501(c)(2) to the
extent provided in section 512(a)(3)(C).
Nonrecognition of Gain
The 2014 proposed regulation did not
reflect the provision of section 512(a)
(3)(D) regarding nonrecognition of gain
with respect to the sale of certain prop-
erty. In this final regulation, a clause has
been added to refer to that provision. Sec-
tion 512(a)(3)(D) provides that, if property
used directly in the performance of the ex-
empt function of a Covered Entity is sold
by the Covered Entity, and other proper-
ty is purchased and used by the Covered
Entity directly in the performance of its
exempt function within a four-year peri-
od beginning one year before the date of
the sale, and ending three years after the
date of sale, gain (if any) from the sale is
recognized only to the extent that the sales
price of the old property exceeds the Cov-
ered Entity’s cost of purchasing the other
property.
Limitation on Amounts Set Aside for
Exempt Purposes
Section 512(a)(3)(E)(i) limits the
amount of investment income a Covered
Entity may treat as nontaxable exempt
function income in any given year to the
extent such income “result[s] in” a year-
end account balance “in excess of” the
modified section 419A account limit.
An account overage can be considered
the result of, or essentially caused by,
investment income only by considering
all investment income earned during the
year. Thus, in order to give an appropri-
ate meaning to the term “result in”, the
total amount of investment income earned
during the year should be considered
when calculating whether an excess exists
at the end of the year.
Certain taxpayers have taken a con-
trary position and asserted that investment
income may be set aside and used sepa-
rately before the end of a taxable year for
current benefit payments and related ad-
ministrative costs (collectively, “benefit
expenditures”) and thereby avoid the limit
imposed by section 512(a)(3)(E)(i) on
exempt function income. In Sherwin-Wil-
liams Co. Employee Health Plan Trust v.
Comm’r, 330 F.3d 449 (6th Cir. 2003),
rev’g, 115 T.C. 440 (2000), the Sixth Cir-
cuit Court of Appeals held that investment
income that the VEBA earmarked and
claimed was spent before year-end on rea-
sonable costs of administration was not
subject to the section 512(a)(3)(E)(i) limit
on exempt function income. In contrast, in
CNG Transmission Mgmt. VEBA v. U.S.,
588 F.3d 1376 (Fed. Cir. 2009), aff ’g, 84
Fed. Cl. 327 (2008), the Federal Circuit
Court of Appeals rejected this argument.
The Court stated that the “language of
section 512(a)(3)(E) is clear and unam-
biguous,” and upheld the Court of Federal
Claims’ conclusion that a VEBA “may not
avoid the limitation on exempt function
income in [section] 512(a)(3)(E)(i) merely
by allocating investment income toward
the payment of welfare benefits during the
course of the tax year.” CNG, 558 F.3d at
1379, 1377-78; accord Northrop Corp.
Employee Insurance Benefit Plans Master
Trust v. U.S., 99 Fed. Cl. 1 (2011), aff ’d,
467 Fed. Appx. 886 (Fed. Cir. April 10,
2012), cert. denied, (Dec. 3, 2012).
The Treasury Department and the IRS
have concluded that the decision in Sher-
win-Williams is contrary to the statute, the
legislative history of section 512(a)(3)(E),
§1.512(a)-5T, and the 1986 and 2014 pro-
posed regulations, and have determined
that it is appropriate to issue this final
regulation clarifying the proper calcula-
tion method.
3
Specifically, the Treasury
Department and the IRS disagree with the
Sixth Circuit’s conclusion that investment
income may be set aside and used sepa-
rately before the end of a taxable year to
pay the reasonable costs of administering
health care benefits and thereby avoid the
limit imposed by section 512(a)(3)(E)(i)
on exempt function income.
4
The fungible nature of money means
that there is necessarily a connection be-
tween investment income that a Covered
Entity earns during the year and the total
amount of funds in the entity at year-end,
even if the Covered Entity purports to ap-
ply all of that income to benefit expendi-
tures. For example, a VEBA with a begin-
ning balance of $1,000, investment income
of $100, benefit expenditures of $3,000,
and employer contributions of $3,000,
will have a year-end balance of $1,100.
This will be true regardless of whether the
1
While section 501(c)(7) organizations are also subject to the UBTI computation rules of section 512(a)(3), this regulation addresses only computations for VEBAs and SUBs.
2
The preamble of the 2014 proposed regulation referred to GLSOs. However, on December 19, 2014, the Tax Increase Prevention Act of 2014, Public Law 113-295 (128 Stat. 4010) repealed
sections 120 and 501(c)(20) regarding GLSOs as “deadwood” provisions.
3
The IRS’s interpretation is set forth in its non-acquiescence to the Sherwin-Williams decision (AOD 2005-02, 2005-35 I.R.B. 422). In AOD 2005-02, the IRS recognized the precedential
effect of the decision to cases appealable to the Sixth Circuit and indicated that it would follow the decision in Sherwin-Williams with respect to cases within that circuit if the opinion could
not be meaningfully distinguished.
4
Notably, the Sixth Circuit opinion in Sherwin-Williams concluded that section 512(a)(3)(E)(i) supported the interpretation adopted by the court, not that the interpretation was based on the
unambiguous terms of the statute or even the best reading of the statute. The Sixth Circuit also erroneously considered the 1986 temporary regulation as consistent with that interpretation.
January 6, 2020 286 Bulletin No. 2020–2

Bulletin No. 2020–2 287 January 6, 2020
VEBA allocates the investment income
to the benefit expenditures. Assume that
the VEBA’s year-end account limit under
section 512(a)(3)(E)(i) is $1,010, so that
there is an account overage of $90. Absent
$90 of the investment income, the VEBA
would have had a year-end account bal-
ance of $1,010 and no account overage.
Thus, $90 of the investment income in the
example “result[s] in” a year-end account
balance “in excess of” the VEBA’s year-
end account limit and may not be set aside
and excluded as exempt function income.
The analysis that all investment income
earned during a year should be considered
in determining whether there is an account
overage is consistent with the Joint Com-
mittee on Taxation’s report with respect to
the legislation that enacted section 512(a)
(3)(E). This report indicated that invest-
ment income is subject to UBTI in “an
amount equal to the lesser of the income
of the fund or the amount by which the
assets in the fund exceed a specific limit
on amounts set aside for exempt purpos-
es.” See Staff of the Joint Comm. on Tax-
ation, 98th Cong., General Explanation
of the Revenue Provisions of the Deficit
Reduction Act of 1984, at 790 (Comm.
Print 1984) (JCS-41-84). Accordingly, the
Treasury Department and the IRS contin-
ue to interpret section 512(a)(3)(E)(i) to
mean that whether a VEBA or SUB allo-
cated its investment income (rather than
other funds) to current year expenditures
is irrelevant to the application of the set
aside limitation.
As discussed above, the statutory pro-
visions are not dependent upon a determi-
nation as to whether particular sources of
income were used for benefit expenditures
in any particular year. Rather, the “result
in” language of section 512(a)(3)(E)(i)
means that amounts set aside for benefit
expenditures are treated as exempt func-
tion income only to the extent the total
amount set aside for such purposes as of
the end of the year is equal to or less than
“the account limit determined under sec-
tion 419A. . . for the taxable year (not tak-
ing into account any reserve described in
section 419A(c)(2)(A) for post-retirement
medical benefits).” Accordingly, the final
regulations reflect this rule, and, for tax-
able years to which these regulations ap-
ply, the IRS will apply this final regulation
to cases arising in the Sixth Circuit.
This final regulation retains the formula,
description, and examples set forth in the
2014 proposed regulation. The 2014 pro-
posed regulation retained the formula set
forth in the 1986 proposed regulation and
§1.512(a)-5T, but modified and clarified
the description and added examples. Thus,
consistent with the 2014 proposed regula-
tion, this final regulation specifically states
that any investment income a Covered En-
tity earns during the taxable year is subject
to unrelated business income tax (UBIT)
to the extent the Covered Entity’s year-end
assets exceed the account limit, and clari-
fies that this rule applies regardless of how
that income is used.
The IRS received two comments on
the 2014 proposed regulation. One of the
commenters asked that the proposed reg-
ulation be withdrawn on the basis that it
is inconsistent with the statute, while the
other commenter indicated his view that
the position taken in the proposed regula-
tion is a fair interpretation of the statute.
With respect to the request that the 2014
proposed regulation be withdrawn, the
Treasury Department and the IRS have
concluded that the position in the 2014
proposed regulation, and adopted in this
final regulation, is not only consistent with
the statute, but is correct for the reasons
set forth in this preamble.
Both of the commenters expressed con-
cern over the proposed applicability date in
the 2014 proposed regulation because of
its potential impact on VEBAs within the
Sixth Circuit’s jurisdiction. The 2014 pro-
posed regulation proposes that it will apply
to taxable years ending on or after the date
of publication of the final regulation. One
commenter argued that the proposed appli-
cability date would be unfair to VEBAs that
are within the Sixth Circuit’s jurisdiction
because these VEBAs and their sponsors
have been operating in good faith under a
tax regime that a federal court of appeals
held is the law. The commenter suggested
that if the 2014 proposed regulation were
finalized as proposed, the regulation should
apply only with respect to taxable years be-
ginning six months after the date the final
regulation is published in the Federal Reg-
ister, at least for VEBAs within the Sixth
Circuit’s jurisdiction.
The other commenter stated that VE-
BAs that account for investment income in
the manner approved by the Sixth Circuit
have been operating in good faith and in
accordance with a reasonable interpreta-
tion of the relevant Code provisions. The
commenter expressed concern that if the
regulation were finalized in the manner
in which it was proposed, the investment
income of those VEBAs would be retroac-
tively taxed. The commenter therefore re-
quested that the proposed applicability date
be changed in the final regulation to the
first taxable year beginning on or after the
date of publication of the final regulation.
Taking into account these comments,
the Treasury Department and the IRS have
decided to modify the applicability date,
so that this final regulation applies to tax-
able years beginning on or after the date
of publication of the final regulation (and
so for VEBAs within the Sixth Circuit’s
jurisdiction, the position reflected in AOD
2005-02 would apply through the end of
the VEBA’s taxable year in which the final
regulation is issued).
Effective/Applicability Date
This regulation is effective on Decem-
ber 10, 2019. The regulation applies to tax-
able years beginning on or after December
10, 2019. For rules that apply to earlier
periods, see §1.512(a)-5T as contained in
26 CFR part 1, revised April 1, 2019.
Special Analyses
This regulation is not subject to review
under section 6(b) of Executive Order
12866 pursuant to the Memorandum of
Agreement (April 11, 2018) between the
Department of the Treasury and the Of-
fice of Management and Budget regard-
ing review of tax regulations. Because
this regulation does not impose a col-
lection of information on small entities,
the Regulatory Flexibility Act (5 U.S.C.
chapter 6) does not apply. Pursuant to
section 7805(f) of the Code, the notice of
proposed rulemaking preceding this regu-
lation was submitted to the Chief Counsel
for Advocacy of the Small Business Ad-
ministration for comment on its impact on
small business.
Drafting Information
The principal authors of this regulation
are Jennifer Solomon and Janet Laufer,

January 6, 2020 288 Bulletin No. 2020–2
Office of Associate Chief Counsel (Em-
ployee Benefits, Exempt Organizations,
and Employment Taxes). However, other
personnel from the Treasury Department
and the IRS participated in the develop-
ment of this regulation.
* * * * *
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 1 is amend-
ed as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805, unless oth-
erwise noted.
* * * * *
Par. 2. Section 1.512(a)-5 is added to
read as follows:
§1.512(a)-5 Questions and answers
relating to the unrelated business
taxable income of organizations
described in paragraphs (9) or (17) of
section 501(c).
(a)(1) Q-1. What does section 512(a)
(3) provide with respect to organizations
described in paragraphs (9) or (17) of sec-
tion 501(c)?
(2) A-1. (i) In general, section 512(a)
(3) provides rules for determining the
unrelated business income tax of volun-
tary employees’ beneficiary associations
(VEBAs) and supplemental unemploy-
ment benefit trusts (SUBs). Under sec-
tion 512(a)(3)(A), a Covered Entity’s
“unrelated business taxable income”
(UBTI) means all income except exempt
function income. Under section 512(a)
(3)(B), exempt function income includes
income that is set aside for exempt pur-
poses, as described in paragraph (b) of
this section, subject to certain limits, as
described in paragraph (c) of this sec-
tion.
(ii) For purposes of this section, a
“Covered Entity” means a VEBA or a
SUB, and, to the extent provided in sec-
tion 512(a)(3)(C), a corporation described
in section 501(c)(2).
(b)(1) Q-2. What is exempt function
income?
(2) A-2
. (i) Under section 512(a)(3)(B),
the exempt function income of a Covered
Entity for a taxable year means the sum
of—
(A) Amounts referred to in the first
sentence of section 512(a)(3)(B) that are
paid by members of the Covered Entity
and employer contributions to the Cov-
ered Entity (collectively “member contri-
butions”);
(B) Other income of the Covered En-
tity (including earnings on member con-
tributions) that is set aside for a purpose
specified in section 170(c)(4) and reason-
able costs of administration directly con-
nected with such purpose; and
(C) Other income of the Covered En-
tity (including earnings on member con-
tributions) that, subject to the limitation
of section 512(a)(3)(E) (as described in
paragraph (c) of this section), is set aside
for the payment of life, sick, accident, or
other benefits and reasonable costs of ad-
ministration directly connected with such
purpose.
(ii) The other income described in
paragraphs (b)(2)(i)(B) and (C) of this
section does not include the gross income
derived from any unrelated trade or busi-
ness (as defined in section 513) regularly
carried on by the Covered Entity, comput-
ed as if the organization were subject to
section 512(a)(1).
(c)(1) Q-3. What are the limits on the
amount that may be set aside?
(2) A-3. (i) Pursuant to section 512(a)
(3)(E)(i), and except as provided in
paragraph (c)(2)(ii) of this section, the
amount of investment income (as defined
in paragraph (c)(2)(iii) of this section) set
aside by a Covered Entity as of the close
of a taxable year of such Covered Entity
to provide for the payment of life, sick,
accident, or other benefits (and adminis-
trative costs associated with the provision
of such benefits) is not taken into account
for purposes of determining the amount
of that income that constitutes “exempt
function income” to the extent that the
total amount of the assets of the Covered
Entity at the end of the taxable year set
aside to provide for the payment of life,
sick, accident, or other benefits (and re-
lated administrative costs) exceeds the
applicable account limit for such taxable
year of the Covered Entity (as described
in paragraph (c)(2)(iv) of this section).
Accordingly, any investment income a
Covered Entity earns during the taxable
year is subject to unrelated business in-
come tax to the extent the Covered Enti-
ty’s year-end assets exceed the applicable
account limit. The rule in this paragraph
(c)(2) applies regardless of whether the
Covered Entity spends or retains (or is
deemed to spend or deemed to retain)
that investment income during the course
of the year. Thus, in addition to the un-
related business taxable income derived
by a Covered Entity from any unrelat-
ed trade or business (as defined in sec-
tion 513) regularly carried on by it, com-
puted as if the organization were subject
to section 512(a)(1), the unrelated busi-
ness taxable income of a Covered Entity
for a taxable year of such an organization
includes the lesser of—
(A) The investment income of the Cov-
ered Entity for the taxable year; and
(B) The excess (if any) of—
(1) The total amount of the assets of
the Covered Entity (excluding amounts
set aside for a purpose described in sec-
tion 170(c)(4)) as of the close of the tax-
able year; over
(2) The applicable account limit for the
taxable year.
(ii) In accordance with section 512(a)
(3)(E)(iii), a Covered Entity is not subject
to the limits described in this paragraph (c)
if substantially all of the contributions to
the Covered Entity are made by employ-
ers who were tax exempt throughout the
five year taxable period ending with the
taxable year in which the contributions
are made.
(iii) For purposes of this section, a
Covered Entity’s “investment income” —
(A) Means all income except –
(1) Member contributions described in
paragraph (b)(2)(i)(A) of this section;
(2) Income set aside as described in
paragraph (b)(2)(i)(B) of this section; or
(3) Income from any unrelated trade or
business described in paragraph (b)(2)(ii)
of this section; and
(B) Includes gain realized by the Cov-
ered Entity on the sale or disposition of
any asset during such year (other than gain
on the sale or disposition of assets of an
unrelated trade or business described in
paragraph (b)(2)(ii) of this section), except
to the extent provided in section 512(a)(3)
(D).

Bulletin No. 2020–2 289 January 6, 2020
(C) For purposes of paragraph (c)(2)
(iii)(B) of this section, the gain realized
by a Covered Entity on the sale or dispo-
sition of an asset is equal to the amount
realized by the organization over the ba-
sis of such asset in the hands of the orga-
nization reduced by any qualified direct
costs attributable to such asset (under
paragraphs (b), (c), and (d) of Q&A-6 of
§1.419A-1T).
(iv) In calculating the total amount of
the assets of a Covered Entity as of the
close of the taxable year, certain assets with
useful lives extending substantially beyond
the end of the taxable year (for example,
buildings and licenses) are not to be taken
into account to the extent they are used in
the provision of life, sick, accident, or oth-
er benefits. By contrast, cash and securities
(and other similar investments) held by a
Covered Entity are taken into account in
calculating the total amount of the assets of
a Covered Entity as of the close of the tax-
able year because they may be used to pay
welfare benefits, rather than merely used in
the provision of such benefits.
(v) The determination of the appli-
cable account limit for purposes of this
paragraph (c) is made under the rules of
sections 419A(c) and 419A(f)(7), except
that a reserve for post-retirement medi-
cal benefits under section 419A(c)(2)
(A) is not to be taken into account. See
§1.419A-2T for special rules relating to
collectively bargained welfare benefit
funds.
(vi) The limits of this paragraph (c) ap-
ply to a Covered Entity that is part of a
10 or more employer plan, as defined in
section 419A(f)(6). For purposes of this
paragraph (c), the account limit is deter-
mined as if the plan is not subject to the
exception under section 419A(f)(6).
(vii) The following examples illustrate
the calculation of a VEBA’s UBTI.
(A) Example 1. (1) Employer X establishes a
VEBA as of January 1, 2015, through which it pro-
vides health benefits to active employees. The plan
year is the calendar year. The VEBA has no employ-
ee contributions or member dues, receives no income
from an unrelated trade or business regularly carried
on by the VEBA, and has no income set aside for a
purpose specified in section 170(c)(4). The VEBA’s
investment income in 2020 is $1,000. As of Decem-
ber 31, 2020, the applicable account limit under sec-
tion 512(a)(3)(E)(i) is $5,000 and the total amount of
assets of the VEBA is $7,000.
(2) The VEBA’s UBTI for 2020 is $1,000. This
is because the UBTI is the lesser of the investment
income for the year ($1,000) and the excess of the
VEBA assets over the account limit at the end of the
year ($7,000 over $5,000, or $2,000).
(B) Example 2. (1) The facts are the same as in
the example in paragraph (c)(2)(vii)(A) of this sec-
tion (Example 1), except that the VEBA’s applicable
account limit under section 512(a)(3)(E)(i) as of De-
cember 31, 2020, is $6,500.
(2) The VEBA’s UBTI for 2020 is $500. This is
because the UBTI for 2020 is the lesser of the invest-
ment income for the year ($1,000) and the excess of
the VEBA assets over the account limit at the end of
the year ($7,000 over $6,500, or $500).
(C) Example 3. (1) Employer Y contributes to a
VEBA through which Y provides health benefits to
active and retired employees. The plan year is the
calendar year. At the end of 2020, there was no car-
ryover of excess contributions within the meaning of
section 419(d), the balance in the VEBA was $25,000,
the Incurred but Unpaid (IBU) claims reserve was
$6,000, the reserve for post-retirement medical ben-
efits (PRMB) (computed in accordance with sec-
tion 419A(c)(2)) was $19,000, and there were no ex-
isting reserves within the meaning of section 512(a)(3)
(E)(ii). During 2021, the VEBA receives $70,000 in
employer contributions and $5,000 in investment in-
come, pays $72,000 in benefit payments and $7,000 in
administrative expenses, and receives no income from
an unrelated trade or business regularly carried on by
the VEBA. All the 2021 benefit payments are with
respect to active employees and the IBU claims re-
serve (that is, the account limit under section 419A(c)
(1)) at the end of 2021 was $7,200. The reserve for
PRMB at the end of 2021 is $20,000. All amounts
designated as “administrative expenses” are expenses
incurred in connection with the administration of the
employee health benefits. “Investment income” is net
of administrative costs incurred in the production of
the investment income (for example, investment man-
agement and/or brokerage fees). Only employers con-
tributed to the VEBA (that is, there were no employee
contributions or member dues/fees). The VEBA does
not set aside any income for the purpose specified in
section 170(c)(4).
(2) The total amount of assets of the VEBA at the
end of 2021 is $21,000 (that is, $25,000 beginning
of year balance + $70,000 contributions + $5,000 in-
vestment income – ($72,000 in benefit payments +
$7,000 in administrative expenses)).
(3) The applicable account limit under sec-
tion 512(a)(3)(E)(i) (that is, the account limit under
section 419A(c), excluding the reserve for post-re-
tirement medical benefits) is the IBU claims reserve
($7,200).
(4) The total amount of assets of the VEBA as of
the close of the year ($21,000) exceeds the applica-
ble account limit ($7,200) by $13,800.
(5) The unrelated business taxable income of the
VEBA is $5,000 (that is, the lesser of investment in-
come ($5,000) and the excess of the amount of assets
of the VEBA as of the close of the taxable year over
the applicable account limit ($13,800)).
(D) Example 4. (1) The facts are the same as in
the example in paragraph (c)(2)(vii)(C) of this sec-
tion (Example 3) except that the 2020 year-end bal-
ance was $15,000.
(2) The total amount of assets in the VEBA at the
end of 2021 is $11,000 (that is, $15,000 beginning
of year balance + $70,000 contributions + $5,000 in-
vestment income – ($72,000 in benefit payments +
$7,000 in administrative expenses)).
(3) The applicable account limit under sec-
tion 512(a)(3)(E)(i) remains $7,200.
(4) The total amount of assets of the VEBA as of
the close of the year ($11,000) exceeds the applica-
ble account limit ($7,200) by $3,800.
(5) The VEBA’s unrelated business taxable in-
come is $3,800 (that is, the lesser of investment in-
come ($5,000) and the excess of the total amount of
assets of the VEBA at the close of the taxable year
over the applicable account limit ($3,800)).
(d)(1) Q-4. What is the effective date of
the amendments to section 512(a)(3) and
what transition rules apply to “existing re-
serves for post-retirement medical or life
insurance benefits”?
(2) A-4. (i) The amendments to sec-
tion 512(a)(3), made by the Tax Reform
Act of 1984, apply to income earned by a
Covered Entity after December 31, 1985,
in the taxable years of such an organiza-
tion ending after such date.
(ii) Section 512(a)(3)(E)(ii)(I) pro-
vides that income that is attributable to
“existing reserves for post-retirement
medical or life insurance benefits” will
not be treated as unrelated business tax-
able income. This includes income that is
either directly or indirectly attributable to
existing reserves. An “existing reserve for
post-retirement medical or life insurance
benefits” (as defined in section 512(a)(3)
(E)(ii)(II)) is the total amount of assets
actually set aside by a Covered Entity on
July 18, 1984 (calculated in the manner
set forth in paragraph (c) of this section,
and adjusted under paragraph (c) of Q&A-
11 of §1.419-1T), reduced by employ-
er contributions to the fund on or before
such date to the extent such contributions
are not deductible for the taxable year of
the employer including July 18, 1984, and
for any prior taxable year of the employer,
for purposes of providing such post-retire-
ment benefits. For purposes of the preced-
ing sentence only, an amount that was not
actually set aside on July 18, 1984, will be
treated as having been actually set aside
on such date if the amount was—
(A) Incurred by the employer (without
regard to section 461(h)) as of the close of
the last taxable year of the Covered Entity
ending before July 18, 1984; and
(B) Actually contributed to the Cov-
ered Entity within 8 ½ months following
the close of such taxable year.

January 6, 2020 290 Bulletin No. 2020–2
(iii) In addition, section 512(a)(3)(E)
(ii)(I) applies to existing reserves for such
post-retirement benefits only to the extent
that such “existing reserves” do not exceed
the amount that could be accumulated un-
der the principles set forth in Revenue
Rulings 69-382, 1969-2 CB 28; 69-478,
1969-2 CB 29; and 73-599, 1973-2 CB
40. Thus, amounts attributable to any such
excess “existing reserves” are not within
the transition rule of section 512(a)(3)(E)
(ii)(I) even though they were actually set
aside on July 18, 1984. See §601.601(d)
(2)(ii)(b) of this chapter.
(iv) All post-retirement medical or
life insurance benefits (or other benefits
to the extent paid with amounts set aside
to provide post-retirement medical or life
insurance benefits) provided after July 18,
1984 (whether or not the employer has
maintained a reserve or fund for such
benefits) are to be charged, first, against
the “existing reserves” within the transi-
tion rule of section 512(a)(3)(E)(ii)(I) (in-
cluding amounts attributable to “existing
reserves” within the transition rule of sec-
tion 512(a)(3)(E)(ii)(I) for post-retirement
medical benefits or for post-retirement life
insurance benefits (as the case may be))
and, second, against all other amounts.
For purposes of this paragraph (d)(2)(iv),
the qualified direct cost of an asset with a
useful life extending substantially beyond
the end of the taxable year (as determined
under Q&A-6 of §1.419-1T) will be treat-
ed as a benefit provided and thus charged
against the “existing reserve” based on the
extent to which such asset is used in the
provision of post-retirement medical ben-
efits or post-retirement life insurance ben-
efits (as the case may be). All plans of an
employer providing post-retirement med-
ical benefits are to be treated as one plan
for purposes of section 512(a)(3)(E)(ii)
(III), and all plans of an employer provid-
ing post-retirement life insurance benefits
are to be treated as one plan for purposes
of section 512(a)(3)(E)(ii)(III).
(v) In calculating the unrelated busi-
ness taxable income of a Covered Entity
for a taxable year of such organization,
the total income of the Covered Entity for
the taxable year is reduced by the income
attributable to “existing reserves” within
the transition rule of section 512(a)(3)(E)
(ii)(I) before such income is compared to
the excess of the total amount of the assets
of the Covered Entity as of the close of the
taxable year over the applicable account
limit for the taxable year.
(vi) The following example illustrates
the calculation of UBTI for a VEBA that
has existing reserves.
(A) Example. Assume that the total income of a
VEBA for a taxable year is $1,000, and that the ex-
cess of the total amount of the assets of the VEBA as
of the close of the taxable year over the applicable
account limit is $600. Assume also that of the $1,000
of total income, $540 is attributable to “existing re-
serves” within the transition rule of section 512(a)(3)
(E)(ii)(I). The unrelated business taxable income of
this VEBA for the taxable year is $460, determined
as the lesser of the following two amounts:
(1) The total income of the VEBA for the taxable
year, reduced by the extent to which such income is
attributable to “existing reserves” within the mean-
ing of the transition rule of section 512(a)(3)(E)(ii)
(I) ($1,000 - $540 = $460); and
(2) The excess of the total amount of
the assets of the VEBA as of the close of
the taxable year over the applicable ac-
count limit ($600).
(B) [Reserved]
(e)(1) Q-5. What is the applicability
date of this section?
(2) A-5. Except as otherwise provided
in this paragraph (e)(2), this section is ap-
plicable to taxable years beginning on or
after December 10, 2019. For rules that
apply to earlier periods, see §1.512(a)-
5T, as contained in 26 CFR part 1, revised
April 1, 2019.
§1.512(a)-5T [Removed]
Par. 3. Section 1.512(a)-5T is removed.
Sunita Lough,
Deputy Commissioner for Services
and Enforcement.
Approved: November 19, 2019.
David J. Kautter,
Assistant Secretary of the Treasury
(Tax Policy).
(Filed by the Office of the Federal Register on De-
cember 9, 2019, 8:45 a.m., and published in the issue
of the Federal Register for December 10, 2019, 84
F.R. 67370)
Update for Weighted
Average Interest Rates,
Yield Curves, and Segment
Rates
Notice 2020-1
This notice provides guidance on the
corporate bond monthly yield curve, the
corresponding spot segment rates used
under § 417(e)(3), and the 24-month aver-
age segment rates under § 430(h)(2) of the
Internal Revenue Code. In addition, this
notice provides guidance as to the interest
rate on 30-year Treasury securities under
§ 417(e)(3)(A)(ii)(II) as in effect for plan
years beginning before 2008 and the 30-
year Treasury weighted average rate under
§ 431(c)(6)(E)(ii)(I).
YIELD CURVE AND SEGMENT
RATES
Section 430 specifies the minimum
funding requirements that apply to sin-
gle-employer plans (except for CSEC
plans under § 414(y)) pursuant to § 412.
Section 430(h)(2) specifies the inter-
est rates that must be used to determine
a plan’s target normal cost and funding
target. Under this provision, present val-
ue is generally determined using three
24-month average interest rates (“segment
rates”), each of which applies to cash
flows during specified periods. To the ex-
tent provided under § 430(h)(2)(C)(iv),
these segment rates are adjusted by the ap-
plicable percentage of the 25-year average
segment rates for the period ending Sep-
tember 30 of the year preceding the cal-
endar year in which the plan year begins.
1

However, an election may be made under
§ 430(h)(2)(D)(ii) to use the monthly yield
curve in place of the segment rates.
Notice 2007-81, 2007-44 I.R.B. 899,
provides guidelines for determining the
monthly corporate bond yield curve, and
the 24-month average corporate bond
segment rates used to compute the target
normal cost and the funding target. Con-
sistent with the methodology specified in
Notice 2007-81, the monthly corporate
1
Pursuant to § 433(h)(3)(A), the 3
rd
segment rate determined under § 430(h)(2)(C) is used to determine the current liability of a CSEC plan (which is used to calculate the minimum amount
of the full funding limitation under § 433(c)(7)(C)).

Bulletin No. 2020–2 291 January 6, 2020
bond yield curve derived from November
2019 data is in Table 2019-11 at the end
of this notice. The spot first, second, and
third segment rates for the month of No-
vember 2019 are, respectively, 2.04, 3.09,
and 3.68.
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
applicable minimum and maximum per-
centages of the corresponding 25-year
average segment rates. For plan years be-
ginning before 2021, the applicable mini-
mum percentage is 90% and the applica-
ble maximum percentage is 110%. The
25-year average segment rates for plan
years beginning in 2018, 2019, and 2020
were published in Notice 2017-50, 2017-
41 I.R.B. 280, Notice 2018-73, 2018-40
I.R.B. 526 and Notice 2019-51, 2019-41
I.R.B. 866, respectively.
24-MONTH AVERAGE CORPORATE
BOND SEGMENT RATES
The three 24-month average corporate
bond segment rates applicable for Decem-
ber 2019 without adjustment for the 25-
year average segment rate limits are as
follows:
24-Month Average Segment Rates Without 25-Year Average Adjustment
Applicable Month First Segment Second Segment Third Segment
December 2019 2.78 3.85 4.30
Based on § 430(h)(2)(C)(iv), the
24-month averages applicable for Decem-
ber 2019, adjusted to be within the appli-
cable minimum and maximum percentag-
es of the corresponding 25-year average
segment rates, are as follows:
Adjusted 24-Month Average Segment Rates
For Plan Years
Beginning InApplicable MonthFirst SegmentSecond SegmentThird Segment
2018December 20193.925.526.29
2019December 20193.745.356.11
2020December 20193.645.215.94
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 calcu-
late current liability for this purpose must
be no more than 5 percent above and no
more than 10 percent below the weighted
average of the rates of interest on 30-year
Treasury 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 inter-
est rate. The rate of interest on 30-year
Treasury securities for November 2019 is
2.28 percent. The Service determined this
rate as the average of the daily determi-
nations of yield on the 30-year Treasury
bond maturing in August 2049 determined
each day through November 6, 2019 and
the yield on the 30-year Treasury bond
maturing in November 2049 determined
each day for the balance of the month For
plan years beginning in December 2019,
the weighted average of the rates of inter-
est on 30-year Treasury securities and the
permissible range of rates used to calcu-
late current liability are as follows:
Treasury Weighted Average Rates
For Plan Years
Beginning In
30-Year Treasury
Weighted Average
Permissible Range
90% to 105%
December 20192.832.55 to 2.97
MINIMUM PRESENT VALUE
SEGMENT RATES
In general, the applicable interest rates
under § 417(e)(3)(D) are segment rates
computed without regard to a 24-month
average. Notice 2007-81 provides guide-
lines for determining the minimum pres-
ent value segment rates. Pursuant to that
notice, the minimum present value seg-
ment rates determined for November 2019
are as follows:

January 6, 2020 292 Bulletin No. 2020–2
Minimum Present Value Segment Rates
Month First Segment Second Segment Third Segment
November 2019 2.04 3.09 3.68
DRAFTING INFORMATION
The
principal author of this notice is
Tom Morgan of the Office of the Asso-
ciate Chief Counsel (Employee Benefits,
Exempt Organizations, and Employment
Taxes). However, other personnel from
the IRS participated in the development
of this guidance. For further information
regarding this notice, contact Mr. Morgan
at 202-317-6700 or Paul Stern at 202-317-
8702 (not toll-free numbers).

Bulletin No. 2020–2 293 January 6, 2020
Table 2019-11
Monthly Yield Curve for November 2019
Derived from November 2019 Data
MaturityYieldMaturityYieldMaturityYieldMaturityYieldMaturityYield
0.51.8420.53.5240.53.7060.53.7780.53.80
1.01.9121.03.5341.03.7061.03.7781.03.80
1.51.9621.53.5341.53.7161.53.7781.53.80
2.02.0122.03.5442.03.7162.03.7782.03.80
2.52.0322.53.5542.53.7162.53.7782.53.80
3.02.0623.03.5643.03.7163.03.7783.03.80
3.52.0823.53.5643.53.7263.53.7783.53.80
4.02.1124.03.5744.03.7264.03.7784.03.81
4.52.1624.53.5744.53.7264.53.7884.53.81
5.02.2125.03.5845.03.7265.03.7885.03.81
5.52.2725.53.5945.53.7265.53.7885.53.81
6.02.3426.03.5946.03.7366.03.7886.03.81
6.52.4126.53.6046.53.7366.53.7886.53.81
7.02.4927.03.6047.03.7367.03.7887.03.81
7.52.5727.53.6147.53.7367.53.7887.53.81
8.02.6528.03.6148.03.7368.03.7888.03.81
8.52.7328.53.6248.53.7368.53.7888.53.81
9.02.8029.03.6249.03.7469.03.7889.03.81
9.52.8729.53.6349.53.7469.53.7889.53.81
10.02.9430.03.6350.03.7470.03.7990.03.81
10.53.0030.53.6450.53.7470.53.7990.53.81
11.03.0631.03.6451.03.7471.03.7991.03.81
11.53.1131.53.6451.53.7471.53.7991.53.81
12.03.1632.03.6552.03.7572.03.7992.03.81
12.53.2032.53.6552.53.7572.53.7992.53.81
13.03.2433.03.6653.03.7573.03.7993.03.81
13.53.2833.53.6653.53.7573.53.7993.53.81
14.03.3134.03.6654.03.7574.03.7994.03.82
14.53.3434.53.6754.53.7574.53.7994.53.82
15.03.3635.03.6755.03.7575.03.7995.03.82
15.53.3835.53.6755.53.7675.53.7995.53.82
16.03.4036.03.6856.03.7676.03.7996.03.82
16.53.4236.53.6856.53.7676.53.8096.53.82
17.03.4437.03.6857.03.7677.03.8097.03.82
17.53.4537.53.6957.53.7677.53.8097.53.82
18.03.4738.03.6958.03.7678.03.8098.03.82
18.53.4838.53.6958.53.7678.53.8098.53.82
19.03.4939.03.6959.03.7679.03.8099.03.82
19.53.5039.53.7059.53.7779.53.8099.53.82
20.03.5140.03.7060.03.7780.03.80100.03.82

January 6, 2020 294 Bulletin No. 2020–2
Part III
Rev. Proc. 2020-9
SECTION 1. PURPOSE
This revenue procedure clarifies which
amendments are treated as integral to
a plan provision that fails to satisfy the
qualification requirements of the Inter-
nal Revenue Code (Code) by reason of
a change to those requirements made by
the recently published regulations under
§§ 401(k) and 401(m) relating to hardship
distributions of elective deferrals. This
revenue procedure also extends the dead-
line, applicable to pre-approved plans, for
adopting an interim amendment relating
to those regulations. The deadline is ex-
tended to December 31, 2021.
SECTION 2. BACKGROUND
.01 Rev. Proc. 2016-37, 2016-29 I.R.B.
136, as modified by Rev. Proc. 2017-41,
2017-29 I.R.B. 92, sets forth a six-year
remedial amendment cycle system for
pre-approved plans. Under this system,
a pre-approved plan provider may apply
for a new opinion letter from the Internal
Revenue Service (IRS) once during each
six-year remedial amendment cycle. Sec-
tion 15.01 of Rev. Proc. 2016-37 provides
that, in order to promote compliance with
changes to plan qualification requirements
during a six-year remedial amendment
cycle, the adoption of an interim amend-
ment generally will be required. Pursuant
to section 4.02 of Rev. Proc. 2016-37, the
requirement for interim amendments does
not apply to individually designed plans.
.02 Section 15.02 of Rev. Proc. 2016-
37 defines an interim amendment as an
amendment with respect to a disqualifying
provision that results in the failure of the
plan to satisfy the qualification require-
ments of the Code by reason of a change
in those requirements that is effective after
December 31, 2001, or that is integral to
such a disqualifying provision.
.03 Final regulations under §§ 401(k)
and 401(m) were published in the Fed-
eral Register (84 FR 49651) on Septem-
ber 23, 2019 (Final Regulations). The
preamble to the Final Regulations states
that the Department of the Treasury and
the IRS expect that many plans’ hardship
distribution provisions will need to be
amended to reflect certain provisions of
the Final Regulations. Plan amendments
required under the Final Regulations are:
(1) an amendment to remove a plan provi-
sion suspending an employee’s contribu-
tions following a hardship distribution of
elective deferrals and (2) an amendment
requiring an employee’s representation
relating to his or her need for a hardship
distribution, if the plan does not already
provide for such a representation. These
“required amendments” must be effective
for hardship distributions made on or af-
ter January 1, 2020 (although a required
amendment may be implemented as early
as the first day of the plan year that begins
after December 31, 2018).
.04 The preamble to the Final Regu-
lations provides that a plan amendment
modifying a plan’s hardship distribution
provisions that is effective no later than
the required amendment, including a plan
amendment reflecting one or more of the
following, will be treated as amending a
provision that is integrally related to a quali-
fication requirement that has been changed:
(1) the change to § 165 (relating to casualty
losses); (2) the addition of the new safe har-
bor expense (relating to expenses incurred
as a result of certain federally declared di-
sasters); and (3) the extension of the relief
under Announcement 2017-15, 2017-47
I.R.B. 534, to victims of Hurricanes Flor-
ence and Michael that was provided in the
preamble to the proposed regulations (83
FR 56763, (Nov. 14, 2018)).
.05 Generally, under section 15.04 of
Rev. Proc. 2016-37, an interim amendment
(described in section 2.02 of this revenue
procedure) is timely adopted if it is adopt-
ed by the end of the remedial amendment
period described in section 2.07 of Rev.
Proc. 2016-37. The remedial amendment
period begins on the date on which the
change becomes effective with respect to
the plan or, in the case of a provision that is
integral to a qualification requirement that
has been changed, the first day on which
the plan is operated in accordance with
the provision as amended. In the case of
a plan maintained by one employer, the re-
medial amendment period ends on the later
of: (1) the due date (including extensions)
for filing the income tax return for the em-
ployer’s taxable year that includes the date
on which the remedial amendment period
begins; or (2) the last day of the plan year
that includes the date on which the remedi-
al amendment period begins.
.06 Under section 15.05 of Rev. Proc.
2016-37, the deadline for adoption of an
interim amendment set forth in section
15.04 applies unless “a statutory provision
or guidance provides another specific dead-
line for the adoption of a particular type of
interim amendment that is earlier or later
than the deadlines under section 15.04.”
SECTION 3. CLARIFICATION OF
INTEGRAL AMENDMENT RULES
AND EXTENSION OF INTERIM
AMENDMENT DEADLINE
.01 This section 3 clarifies which amend-
ments are treated as integral to a plan pro-
vision that fails to satisfy the Final Regu-
lations and extends the plan amendment
deadline provided in section 15.04 of Rev.
Proc. 2016-37, applicable to interim amend-
ments with respect to required amendments
described in section 2.03 of this revenue
procedure, and all amendments treated as
integral to those amendments.
.02 All plan amendments that relate to
a plan’s hardship distribution provisions
and that are effective no later than Janu-
ary 1, 2020, are treated as integral to the
required amendments described in section
2.03 of this revenue procedure. This treat-
ment applies even if the required amend-
ments are implemented earlier than for
hardship distributions made on or after
January 1, 2020.
.03 Pursuant to section 15.05 of Rev.
Proc. 2016-37, the deadline, applicable to
pre-approved plans, for adopting interim
amendments with respect to the required
amendments described in section 2.03 of
this revenue procedure and all amend-
ments that are integral to those amend-
ments (as described in section 3.02 of this
revenue procedure) is extended to Decem-
ber 31, 2021.
SECTION 4. EFFECTIVE DATE
This revenue procedure is effective De-
cember 12, 2019.

Bulletin No. 2020–2 295 January 6, 2020
SECTION 5. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Angelique Carrington of the
Office of Associate Chief Counsel (Em-
ployee Benefits, Exempt Organizations,
and Employment Taxes). For further in-
formation regarding this revenue proce-
dure, contact Ms. Carrington at (202) 317-
4148 (not a toll-free number).
Rev. Proc. 2020-10
SECTION 1. PURPOSE
This revenue procedure provides that
the third six-year remedial amendment cy-
cle for pre-approved defined benefit plans
begins on May 1, 2020, and ends on Jan-
uary 31, 2025. It further provides that the
on-cycle submission period for providers
to submit applications for opinion letters
for pre-approved defined benefit plans be-
gins on August 1, 2020, and ends on July
31, 2021.
SECTION 2. BACKGROUND
.01 Rev. Proc. 2016-37, 2016-29
I.R.B. 136, provides that every pre-ap-
proved plan has a regular, six-year reme-
dial amendment cycle. It also sets forth
schedules for the second six-year reme-
dial amendment cycle for pre-approved
defined benefit plans (beginning on Feb-
ruary 1, 2013, and ending on January 31,
2019) and for the third six-year remedial
amendment cycle for pre-approved de-
fined benefit plans (beginning on February
1, 2019, and ending on January 31, 2025).
However, it further provides that the In-
ternal Revenue Service (IRS) may revise
the schedules for remedial amendment cy-
cles for pre-approved plans to respond to
changing circumstances and the needs of
plan sponsors and that any such revisions
and the timing of the submission periods
within each cycle will be announced in fu-
ture guidance.
.02 Announcement 2018-05, 2018-
13 I.R.B. 461, provides that the second
six-year remedial amendment cycle for
pre-approved defined benefit plans ends
on April 30, 2020 (rather than on January
31, 2019, as originally set forth in Rev.
Proc. 2016-37). Announcement 2018-05
also states that the IRS will announce in
future guidance a delayed beginning date
for the third six-year remedial amendment
cycle for pre-approved defined benefit
plans.
.03 Rev. Proc. 2017-41, 2017-29 I.R.B.
92, modifies the pre-approved letter pro-
gram by combining the master and proto-
type and volume submitter programs into
a new opinion letter program. Under this
program, providers of pre-approved plans
may apply for new opinion letters once
every six years. Rev. Proc. 2017-41 sets
forth the procedures for obtaining opinion
letters for qualified pre-approved plans
submitted with respect to the third (and
subsequent) six-year remedial amendment
cycles. Pre-approved defined contribu-
tion plans have different six-year remedi-
al amendment cycles than pre-approved
defined benefit plans. Thus, the same six-
year remedial amendment cycle applies
with respect to all pre-approved defined
contribution plans, and a separate six-year
remedial amendment cycle applies with
respect to all pre-approved defined benefit
plans.
.04 Rev. Proc. 2016-37 and Rev. Proc.
2017-41 provide that the IRS will review
plans that have been submitted during the
applicable on-cycle submission period
for a six-year remedial amendment cycle,
taking into account the applicable Cumu-
lative List of Changes in Plan Qualifica-
tion Requirements that identifies changes
in the qualification requirements of the
Internal Revenue Code as well as items
of published guidance relating to the plan
qualification requirements. Rev. Proc.
2017-41 provides that when the review of
a remedial amendment cycle for pre-ap-
proved plans has neared completion, the
IRS will announce the date by which
adopting employers must adopt the newly
approved plans.
SECTION 3. THIRD SIX-YEAR
REMEDIAL AMENDMENT CYCLE
AND ON-CYCLE SUBMISSION
PERIOD FOR PROVIDERS OF PRE-
APPROVED DEFINED BENEFIT
PLANS
.01 The third six-year remedial amend-
ment cycle for pre-approved defined ben-
efit plans begins on May 1, 2020, and ends
on January 31, 2025 (the same end date set
forth in Rev. Proc. 2016-37).
.02 The on-cycle submission period
for pre-approved defined benefit plan
providers to submit applications for opin-
ion letters with respect to the third six-
year remedial amendment cycle begins
on August 1, 2020, and ends on July 31,
2021.
.03 When the IRS review process for
pre-approved defined benefit plans for
the third six-year remedial amendment
cycle has neared completion, the IRS will
announce the date by which adopting em-
ployers must adopt the newly approved
plans and, if they are otherwise eligible,
apply for an individual determination let-
ter.
SECTION 4. EFFECT ON OTHER
DOCUMENTS
Rev. Proc. 2016-37 and Rev. Proc.
2017-41 are modified.
SECTION 5. EFFECTIVE DATE
This revenue procedure is effective De-
cember 16, 2019.
SECTION 6. PAPERWORK
REDUCTION ACT
The collection of information con-
tained in Rev. Proc. 2017-41 has been
reviewed and approved by the Office of
Management and Budget in accordance
with the Paperwork Reduction Act (44
U.S.C. 3507) under control number 1545-
1674.
SECTION 7. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Arslan Malik of the Office
of Associate Chief Counsel (Employee
Benefits, Exempt Organizations, and Em-
ployment Taxes). For further information
regarding this revenue procedure contact
Employee Plans at (513) 975-6319 (not a
toll-free number).

Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the
effect:
Amplified describes a situation where
no change is being made in a prior pub-
lished position, but the prior position is
being extended to apply to a variation of
the fact situation set forth therein. Thus, if
an earlier ruling held that a principle ap-
plied to A, and the new ruling holds that
the same principle also applies to B, the
earlier ruling is amplified. (Compare with
modified, below).
Clarified is used in those instances
where the language in a prior ruling is be-
ing made clear because the language has
caused, or may cause, some confusion. It
is not used where a position in a prior rul-
ing is being changed.
Distinguished describes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.
Modified is used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A
and B, the prior ruling is modified because
it corrects a published position. (Compare
with amplified and clarified, above).
Obsoleted describes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transactions.
This term is most commonly used in a ruling
that lists previously published rulings that
are obsoleted because of changes in laws or
regulations. A ruling may also be obsoleted
because the substance has been included in
regulations subsequently adopted.
Revoked describes situations where the
position in the previously published ruling
is not correct and the correct position is
being stated in a new ruling.
Superseded describes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a
period of time in separate rulings. If the
new ruling does more than restate the sub-
stance of a prior ruling, a combination of
terms is used. For example, modified and
superseded describes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previous-
ly published ruling in a new ruling that is
self contained. In this case, the previously
published ruling is first modified and then,
as modified, is superseded.
Supplemented is used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names
in subsequent rulings. After the original
ruling has been supplemented several
times, a new ruling may be published that
includes the list in the original ruling and
the additions, and supersedes all prior rul-
ings in the series.
Suspended is used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of cas-
es in litigation, or the outcome of a Ser-
vice study.
Abbreviations
The following abbreviations in current use
and formerly used will appear in material
published in the Bulletin.
A—Individual.
Acq.—Acquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI
—City.
COOP—Cooperative.
Ct.D.—Court Decision.
CY—County.
D—Decedent.
DC—Dummy Corporation.
DE—Donee.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Employer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduciary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor.
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Transferee.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpayer.
TR—Trust.
TT—Trustee.
U.S.C.—United States Code.
X—Corporation.
Y—Corporation.
Z—Corporation.
Bulletin No. 2020–2 i January 6, 2020

Numerical Finding List
1
Bulletin 2020–2
Notices:
2020-1, 2020-2 I.R.B. 290
Treasury Decisions:
9886, 2020-2 I.R.B. 285
Revenue Procedures:
2020-1, 2020-01 I.R.B. 1
2020-2, 2020-01 I.R.B. 107
2020-3, 2020-01 I.R.B. 131
2020-4, 2020-01 I.R.B. 148
2020-5, 2020-01 I.R.B. 241
2020-7, 2020-01 I.R.B. 281
2020-9, 2020-02 I.R.B. 294
2020-10, 2020-02 I.R.B. 295
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2018–27 through 2018–52 is in Internal Revenue Bulletin
2018–52, dated December 27, 2018.
January 6, 2020 ii Bulletin No. 2020–2

Bulletin No. 2020–2 iii January 6, 2020
Finding List of Current Actions on
Previously Published Items
1
Bulletin 2020–2
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2018–27 through 2018–52 is in Internal Revenue Bulletin
2018–52, dated December 27, 2018.

Internal Revenue Service
Washington, DC 20224
Official Business
Penalty for Private Use, $300
INTERNAL REVENUE BULLETIN
The Introduction at the beginning of this issue describes the purpose and content of this publication. The weekly Internal Revenue
Bulletins are available at www.irs.gov/irb/.
We Welcome Comments About the Internal Revenue Bulletin
If you have comments concerning the format or production of the Internal Revenue Bulletin or suggestions for improving it,
we would be pleased to hear from you. You can email us your suggestions or comments through the IRS Internet Home Page
www.irs.gov) or write to the Internal Revenue Service, Publishing Division, IRB Publishing Program Desk, 1111 Constitution Ave.
NW, IR-6230 Washington, DC 20224.